The Latest Quarterly Statistics From The World Gold Council Mean Very Little, If Anything At All
By Charles Wyatt
minesite.com
There is more rubbish written about gold than you can wave a stick at, and it happens especially frequently if an opportunity arises during the silly season in August when most sensible people in the northern hemisphere are on holiday. The Daily Telegraph, for instance, had its own unique response to a press release from the World Gold Council: “Gold Demand Remains Robust Despite Pressure On Jewellery Purchases From Global Economic Downturn And High Gold Prices”. It ran a picture on the front page of its business section showing a musician called Goldie, who is famous for an array of gold front teeth, suggesting that it was bad news for him. If the journos had bothered to check the actual gold price they would have seen that these front teeth became a bit more valuable yesterday.
But why should they do anything as sensible as that when there is space to be filled? Anyway they followed up with a piece headed “Price Hike Sends Gold Demand To Six Year Low” and went on to claim that jewellery buyers were the main drivers of the gold price. As if! What a good thing it would have been if the Telegraph’s reporter had read the India Express before making a fool of herself. A completely different view was expressed there: “The yellow metal is turning out to be a major investment avenue for Indian investors. Despite high local prices, dollar volatility and fall in general demand for jewellery, retail investment demand for gold has taken a sharp upswing of 515.8 per cent to 109 tonnes in the second quarter of calendar 2009 from 17.7 tonnes in the first quarter. Retail investment demand in India — the leading bullion market in the world — returned to positive levels from the dishoarding seen during the first quarter”.
One journalist whose glass is half empty, another who’s glass is half full. Everyone has their own views on gold, and the only really important thing about it is the price translated from dollars into home currency to give the true picture. Even the gold analysts of the London Bullion Bullion Market Association manage to prove year on year that their chances of forecasting the gold price is about on a par with their chances of backing the winner of the Yorkshire Oaks today. With four months left to go, poor old Rene Hochreiter of Allan Hochreiter Ltd in Johannesburg has forecast a high point of gold for this year of US$750 per ounce so he might as well take a bath and go home. Funnily enough, though, he was at the other end of the scale when he forecast an average price of US$1,050 per ounce in 2008. And he will be accompanied to the changing rooms by John Read of UBS who saw gold averaging US$700 per ounce in 2009, the first decline in the average price since 2001. John reckoned gold would be hit by a stronger dollar, deflationary risks in developed markets, lower jewellery demand and a decline in producer de-hedging.
Make what you will of that form of reasoning. Only today Marc Elliott of Fairfax IS reported that gold advanced for the third day running as inflation expectations rise with recovery hopes. Hindsight always helps and of course we are now aware that the Central Banks are going to continue with their agreement to curb sales. The reduction in the annual ceiling on sales from 500 tonnes in the current agreement to 400 tonnes a year starting on September 27th acknowledges that the appetite of these banks for selling gold is diminishing. Hardly takes a brain surgeon to deduce that. And luckily there are not many politicians around as dim as the UK’s Brown and Balls who insisted on selling most of the UK’s gold reserves eight years ago at US$275 per ounce. The current price is US$940 per ounce.
Quarterly analysis of gold supply and demand is, by and large, a waste of time, though it helps to keep GFMS, who produce the figures, in business. Just for the record, investment demand for gold remained very strong in the second quarter of 2009, rising 46 per cent on year earlier levels. Overall demand for gold fell back, however from recent high levels as weak economic conditions and high gold prices combined to impact demand. You win some, you lose some. Although gold demand remains very high on a historical basis, total demand in the second quarter of 2009 was down nine per cent on the levels of a year earlier, which will not come as a huge surprise. Total identifiable investment demand for gold, which includes exchange traded funds and bars and coins, remained very strong. Investment demand rose to 222 tonnes, a 46 per cent increase on year-earlier levels, but below the extreme highs experienced during the previous three quarters when the economic and financial crisis was at its peak.
Not worth regurgitating all the statistics when the only facts you need to know are that the gold price has risen by more than 50 per cent in the last 20 months and 21 per cent since Christmas. It’s no wonder investors are hedging their bets in gold when the world’s banking system is still in a shambles and cannot provide adequate funding for commerce and industry in the West. It only needs a major act of terrorism, more crass stupidity from politicians, or an upward blip in the oil price and the price of gold could well go north of US$1,000 per ounce. |
