If gold is a bubble it certainly hasn’t broken yet.
And if central banks decide to buy it in size they are capable of running it up until they decide to stop.
It’s what I’d call off balance sheet deficit spending. When a CB buys gold functionally it’s govt spending without taxing, adds to demand, etc. just as if the tsy had bought the gold with deficit spending, but it’s not accounted for as part of the deficit.
So we go out and spend enormous effort and energy to build the heavy equipment and related hardware to dig vast holes in the ground we call gold mines, bring up immense quantities of ore to get tiny quantities of gold out of it and by labor and energy intensive refining to make it into gold bars, which we then spend more time and energy to transport to each CB’s hole in the ground also constructed with large quantities of real resources, and spend more time and materials guarding our gold in our hole in the ground against someone going to the the trouble to take our gold out of our hole in the ground and put it in their hole in the ground. (Steve Cianciola, circa 1970)
Printing new highs in Gold this morning in London (1093.10 the high paid so far) 1 month atms up another +1.5pts (after being up 3.5pts yesterday: 17 –>20.5) as we continue to see a lot of interest and short dated upsides from a variety of accounts/investors over the past 24hrs. I have attached GSJBWere note below with their thoughts on IMF gold sales to India which they published overnight – it’s a quick read and just reiterates what we have been saying on the desk that this has been most certainly a key development for the gold market on its own; also worth noting that GSJBWere raised 12-month trading range in Gold to $950 – $1200/oz.
GSJBWere Commodities: Gold Sector: Indian Rope Trick
Commodities | Australia
• The International Monetary Fund (IMF) has completed a sale of 200 tonnes of gold to India, for a consideration of US$6.7 billion.
• The quantity is a little under 50% of the total of 403.3 tonnes of gold to be sold by the IMF, approved for sale as recently as September this year. It also constitutes half of the annual sales capacity agreed by the current Central Bank Gold Agreement.
• The gold price rallied to a fresh record high above US$1,085/oz shortly after the news was released.
• The fact that such a large sale was executed off-market and without any negative impact on the gold price will greatly reduce concerns about the overhang of the remaining 203 tonnes of approved sales quota.
• Furthermore, we find it hard to imagine that India will be the only country looking at gold as an opportunity to diversify its reserves away from the US dollar.
• We therefore view this development as very positive for the gold price outlook, and we have raised our 12-month trading range to US$950 – $1,200/oz (formerly $925 to $1,100/oz).
• We have also raised the base price for our gold price assumptions to $1,000/oz (formerly $950/oz), given that the average price in October exceeded our expectations at $1,043/oz. The changes to our annual average gold price assumptions and earnings estimates are tabulated below.
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