Goldman Sachs is once
again predicting that gold will fall, setting a new near-term target of
$1,050.
Never mind the
schizophrenic gene that would be required to follow the constantly fluctuating
predictions of all these big banks; it's amazing to me that anyone continues
to listen to them after their abysmal record and long-standing anti-gold
stance.
Sure, the
too-big-to-fails can move markets—but they say things that are good for them,
not us.
When I visited China two
years ago, guess who no one was talking about? Goldman Sachs. There was news
about the US, of course, but the regular diet of journalistic intake
consisted of Chinese activity, not North American. And surprise, surprise, the
view from that side of the big blue ball was materially different than what
we hear and read here—and in some cases, the opposite.
Not only has the average
Chinese housewife, perhaps the most frugal and cautious species of savers in
the world, probably never heard of Goldman Sachs and their call for $1,000
gold—if she had, she would think: 垃圾! (Rubbish!)
Here's some evidence.
Since January 1, gold ETF holdings have fallen by roughly a quarter (26%,
according to GFMS). But Chinese housewives aren't refraining from buying and
certainly aren’t selling:
The red dotted line
represents the total outflows of GLD through last Tuesday. The gold bars are
cumulative monthly imports of gold to China, through Hong Kong. You can see
that China has absorbed roughly twice what most North American ETF holders
have sold. It's actually more than that, because we only have Hong Kong
import data up to the end of July.
But it's even more
dramatic than this.
If you dig down into the
data further, you find that cumulative gold imports through July
surpassed the 26.7 million ounces (831 tonnes) that
was imported to China for the whole of 2012.
That means rather than
being deterred from buying gold when its price was declining this year, the
Chinese were snapping up the yellow metal as fast as they could. Further,
last year Chinese miners produced 12.9 million ounces (403 tonnes) of gold, all of which stayed in the country.
When you look at physical
deliveries from the Shanghai Gold Exchange (SGE) vs. the COMEX and global
mine production, you can see a clear trend this year:
Deliveries at the SGE are
significantly greater than those at the COMEX. Delivery ratios on the Comex have consistently been under 10%, in contrast to more
than 30% on the SGE. Through June, the SGE has nearly matched all of last year's total.
What's even more
astonishing: year-to-date deliveries on the SGE are close to global mine production. In the first six months, delivery reached
35.3 million ounces (1,098 tonnes), just 20% less
than what all gold companies mined last year.
It is headlines like
these that the Chinese read—not what Goldman Sachs writes.
It's not just the
Chinese, of course. India, for now, is still the largest gold market. Despite
relentless restrictions from her government, Mrs. Singh bought more gold
jewelry and bullion last quarter than any other country.
China and India accounted
for almost 60% of the global gold jewelry sector last quarter, and roughly half
of total bar and coin demand. Further, both countries saw almost 50% more
consumer demand in the first half of the year compared to the same period in
2012.
The two countries are
again setting records…
- China
purchased 8.8 million ounces (275 tonnes), 87%
more than last year
- India
bought 9.9 million ounces (310 tonnes), 71%
more than 2012
It's true that official
Indian gold imports dropped in August, to just 0.08 million ounces (2.5 tonnes), a 95% plunge from July’s volume of 1.5 million
ounces (47.5 tonnes). It's not yet clear, however,
that Indian authorities have managed to subdue gold imports as they have been
desperately trying to do; keep in mind the widespread reports of gold
smuggling. Meanwhile, the wedding season is just ahead, so demand is likely
to bounce back up.
Physical demand also
soared in Thailand, Indonesia, and Vietnam last quarter, with increases
ranging from 20% to 40% being reported. Add it all up and the Asian/emerging
countries comprise the lion's share of consumer demand for gold, about 70%.
It begs the question, are
Asians just smarter than Goldman Sachs?
What does this mean to us
as investors?
The structure of
the gold market is changing. Gold is moving from the so-called "weak
hands"—those who saw gold as a "trade" and/or were seeking
quick profits—to "strong hands," who see the big picure and are buying for the long term.
Gold is moving
west to east.
You've heard this before, but the above data irrefutably points to this
fact—and the trend shows no signs of letting up.
The East will
have an increasingly greater impact on price. As Asian countries take over more
and more of the market, their influence on the price will only grow.
The gold bull
market is not over, regardless of what GS says. When I read their comments on the
precious metals market, I sometimes wonder if they really understand it. But
then again, do any of their analysts even own any gold?
Mrs. Chang, I'm with you.
