Mystery In The Gold Market:
The Plot Thickens. July 11th, 1999
(More on “The Mystery in the Gold Market”)
By Professor von Braun
The Rocket School of Economics
A report that appeared in the BBC news the other day (July 8th), should help to resolve a minor dilemma the World Gold Council may have. It was stated in this BBC report that(according to the bullion market) estimates of the total gold owned by the residents of India is 35,000 tonnes. That IS 35,000 tonnes. Furthermore this report went on to say that annual demand was another 800 tonne. Considerably more than the next three consumers, Italy, the US and China, who it seems consume 750 tonne between them.
What the World Gold Council could do is, instead of running those well filmed, badly scripted television ads that remind us all of the history channel, all they have to do is go to India and visit the people residing in what the BBC report referred to as “rural India”, where it seems, the report stated , “practically all savings are in gold holdings”.
Now it would seem that if you increase consumption in India, then the low gold price is a thing of the past. Any marketing consultant should be able to figure that out and at these price levels the Indians should be able to imitate an American housewife shopping on New York's famous 5th Avenue during the “after Xmas sale”. What's more these people are already willing buyers as evidenced by their annual consumption figures. Why be so stupid as to target CNBC and CNN viewers who really don't give a damn about gold anyway, when obviously you have existing consumers who already are leading the consumption stakes.
This BBC report should also be of interest to the LBMA, who, as we have noted before, tell us that they trade 900/1000 tonnes per day on what must be a very busy exchange. We have suggested that the LBMA trades the entire known above ground gold reserves (estimated to be 120,000 tonnes) 2 1/2 times a year. No mean feat we might add.
Now for those of you with a mathematical bent, as in “how many pennies are there in the pound”, given that Central Bank reserves are believed to be about 26,000 tonnes, India owns 35,000 tonnes, which gives us a total of 61,000 tonnes. Therefore, it appears the amount that may be available to trade is, at the wildest, most optimistic guess, 60,000 tonnes, which the LBMA (so they tell us) trades every 3 months. Not bad. Not bad at all.
The World Gold Council would also find it interesting and perhaps helpful to their case (assuming that they know what their case is), that the “rural Indians” are not all that sophisticated and it seems would not buy paper gold, but would want the real thing, the physical metal, delivered at the point of sale.
We would also suggest that, on a cautionary note, should the LBMA ever contemplate setting up shop in “rural India”, they think twice since there may be a problem with actual delivery from their members who it seems love to trade, but not deliver. Being based in the UK could cause a minor problem since, if you could not deliver, you may suffer the same fate as your Imperial British predecessors.
The venerable Bank of England should also pay attention to this BBC report and employ some US trained, highly efficient telemarketers. That's the people who call you up over the phone and sell you things. The reason we point this out is that India consumes 16 tonnes of gold a week and it would have been prudent for the BOE to a) employ a group of US telemarketers and b) give them every Indian phone book there is and let them go to it.
Why deal with the LBMA, when you could deal direct with the unsophisticated rural Indians ? Keep in mind folks that the Brits, back in the days when they had some clout, controlled what went on in India, or they thought they did, and if you (assuming of course that you are an unsophisticated rural Indian) had a phone call from a telemarketer speaking on behalf of the Bank of England, offering gold at 5% below spot, you would buy it.
This campaign, coupled with some television ads from the World Gold Council on local Indian TV (does the WGC have an office in India - one would certainly hope so) should do the trick.
It is obvious (as a result of the price action in gold since the BOE announcement) that the LBMA, trading it's 900+ tonnes per day, can't absorb a 25 tonne sale. That definitely signals the fact that something is seriously wrong. After all, the well publicized BOE 25 tonne “auction” is 2 1/2% of the daily turnover of the LBMA. And they cant absorb it ?
Well have I got a deal for you.
Whatever is driving the gold market at present has nothing to do with physical gold. That is becoming very obvious. The sophisticated urban electronic whiz kids that seem to inhabit the US stockmarkets should take note of the activities of their “unsophisticated rural Indian” cousins.
So, should the World Gold Council, a body that seems to imply that it is speaking for and on behalf of the “world” gold market, (and according to our up to date world atlas India is a part of the world), be sophisticated enough to at least target real consumers and consider India as its ideal market, instead of the US. Or should it seriously consider changing it's name?
Professor von Braun is a guest commentator at www.lemetropolecafe.com and can be contacted via email at profvonb@aol.com
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