A glance at any gold price chart reveals the severity of the bear
mauling it has endured over the last three years.
More alarming, even for die-hard gold investors, is that some of the
fundamental drivers that would normally push gold higher, like a weak US
dollar, have reversed.
Throw in a correction-defying Wall Street stock market, and the
never-ending rain of disdain for gold from the mainstream, and it may seem
that there’s no reason to buy gold; the bear is here to stay.
If so, then I have a question. Actually, a whole bunch of questions.
If we’re in a bear market, then…
Why Is China Accumulating Record Amounts of Gold?
Mainstream reports will tell you Chinese imports through Hong Kong
are down. They are.
But total gold imports are up. Most journalists continue to overlook
the fact that China imports gold directly into Beijing and Shanghai now.
There are at least 12 importing banks—that we know of.
Counting these “unreported” sources, imports have risen sharply. How
do we know? From other countries’ export data. Take Switzerland, for example:
So far in 2014, Switzerland has shipped 153 tonnes (4.9 million
ounces) to China directly. This represents over 50% of what they sent through
Hong Kong (299 tonnes).
The UK has also exported £15 billion in gold so far in 2014,
according to customs data. In fact, London has shipped so much gold to China
(and other parts of Asia) that their domestic market has “tightened
significantly” according to bullion analysts there.
Why Is China Working to Accelerate Its Accumulation?
This is a growing trend. The People’s Bank of China released a plan
just last Wednesday to open up gold imports to qualified miners, as well as
all banks that are members of the Shanghai Gold Exchange. Even commemorative
gold maker China Gold Coin could qualify to import bullion. Not only will
this further increase imports, but it will serve to lower premiums for
Chinese buyers, making purchases more affordable.
As evidence of burgeoning demand, gold trading on China’s largest
physical exchange has already exceeded last year’s record volume. YTD volume
on the Shanghai Gold Exchange, including the city’s free-trade zone, was
12,077 tonnes through October vs. 11,614 tonnes in all of 2013.
The Chinese wave has reached tidal proportions—and it’s still
growing.
Why Are Other Countries Hoarding Gold?
The World Gold Council (WGC) reports that for the 12 months ending
September 2014, gold demand outside of China and India was 1,566 tonnes (50.3
million ounces). The problem is that demand from China and India already
equals global production!
India and China currently account for approximately 3,100 tonnes of
gold demand, and the WGC says new mine production was 3,115 tonnes during the
same period.
And in spite of all the government attempts to limit gold imports,
India just recorded the highest level of imports in 41 months; the country
imported over 39 tonnes in November alone, the most since May 2011.
Let’s not forget Russia. Not only does the Russian central bank
continue to buy aggressively on the international market, Moscow now buys
directly from Russian miners. This is largely because banks and brokers are
blocked from using international markets by US sanctions. Despite this, and
the fact that Russia doesn’t have
to buy gold but keeps doing so anyway.
Global gold demand now eats up more than miners around the world can
produce. Do all these countries see something we don’t?
Why Are Retail Investors NOT Selling SLV?
SPDR gold ETF (GLD) holdings continue to largely track the price of
gold—but not the iShares silver ETF (SLV). The latter has more retail
investors than GLD, and they’re not selling. In fact, while GLD holdings
continue to decline, SLV holdings have shot higher.
While the silver price has fallen 16.5% so far this year, SLV
holdings have risen 9.5%.
Why are so many silver investors not only holding on to their ETF
shares but buying more?
Why Are Bullion Sales Setting New Records?
2013 was a record-setting year for gold and silver purchases from the
US Mint. Pretty bullish when you consider the price crashed and headlines
were universally negative.
And yet 2014 is on track to exceed last year’s record-setting pace,
particularly with silver…
- November silver Eagle sales from the US Mint
totaled 3,426,000 ounces, 49% more than the previous year. If
December sales surpass 1.1 million coins—a near certainty at this
point—2014 will be another record-breaking year.
- Silver sales at the Perth Mint last month also
hit their highest level since January. Silver coin sales jumped to
851,836 ounces in November. That was also substantially higher than the
655,881 ounces in October.
- And India’s silver imports rose 14% for the
first 10 months of the year and set a record for that period. Silver
imports totaled a massive 169 million ounces, draining many vaults in
the UK, similar to the drain for gold I mentioned above.
To be fair, the Royal Canadian Mint reported lower gold and silver
bullion sales for Q3. But volumes are still historically high.
Why Are Some Mainstream Investors Buying Gold?
The negative headlines we all see about gold come from the
mainstream. Yet, some in that group are buyers…
Ray Dalio runs the world’s largest hedge fund, with approximately
$150 billion in assets under management. As my colleague Marin Katusa puts
it, “When Ray talks, you listen.”
And Ray currently allocates 7.5% of his portfolio to gold.
He’s not alone. Joe Wickwire, portfolio manager of Fidelity
Investments, said last week, “I believe now is a good time to take advantage
of negative short-term trading sentiment in gold.”
Then there are Japanese pension funds, which as recently as 2011 did
not invest in gold at all. Today, several
hundred Japanese pension funds actively invest in the metal.
Consider that Japan is the second-largest pension market in the world. Demand
is also reportedly growing from defined benefit and defined contribution
plans.
And just last Friday, Credit Suisse sold $24 million of US notes tied
to an index of gold stocks, the largest offering in 14 months. That’s a
bet that producers will rebound from near six-year lows.
These (and other) mainstream investors are clearly not expecting gold
and gold stocks to keep declining.
Why Are Countries Repatriating Gold?
I mean, it’s not as if the New York depository is unsafe. It and Ft.
Knox rank as among the most secure storage facilities in the world. That
makes the following developments very curious:
- Netherlands repatriated 122 tonnes (3.9 million
ounces) last month.
- France’s National Front leader urged the Bank
of France last month to repatriate all its gold from overseas vaults,
and to increase its bullion assets by 20%.
- The Swiss Gold Initiative, which did not pass a
popular vote, would’ve required all overseas gold be repatriated, as
well as gold to comprise 20% of Swiss assets.
- Germany announced a repatriation program last
year, though the plan has since fizzled.
- And this just in: there are reports that the
Belgian central bank is investigating repatriation of its gold reserves.
What’s so important about gold right now that’s spurned a new trend
to store it closer to home and increase reserves?
These strong signs of demand don’t normally correlate with an asset
in a bear market. Do you know of any
bear market, in any asset, that’s seen this kind of demand?
Neither do I.
My friends, there’s only one explanation: all these parties see the
bear soon yielding to the bull. You and I aren’t the only ones that see it on
the horizon.
Christmas Wishes Come True…
One more thing: our founder and chairman, Doug Casey himself, is now
willing to go on the record saying that he thinks the bottom is in for gold.
I say we back up the truck for the bargain of the century. Just like
all the others above are doing.
With gold on sale for the holidays, I arranged for premium discounts
on SEVEN different bullion products in the new issue of BIG GOLD. With gold and silver prices at four-year lows and fundamental
forces that will someday propel them a lot higher, we have a truly unique
buying opportunity. I want to capitalize on today’s “most mispriced asset”
before sentiment reverses and the next uptrend in precious metals kicks into
gear.
It’s our first ever Bullion Buyers Blowout—and I hope you’ll take
advantage of the can’t-beat offers. Someday soon you will pay a lot more for
your insurance. Save now with these discounts.
