Complaining about gold having a stagnant year? Over the last year, gold started a little over $1300 an ounce and is now a little under $1300 an ounce. Unimpressive to gold holders. In the same timeframe, the US Dollar index has risen from 80 to 94. Gold has not been pummeled like other commodities despite the +/- 20% rally in the dollar. The dollar appearing to be the cleanest dirty shirt in the world is only going to last for so long. We are all still set up for a new QE, so one wonders where the new bubble or flood of dollars will go to. The last time the system feared a "Grexit", the price of gold shot up to all time highs nearly touching 2,000 an ounce. We are once again facing a Grexit or an ECB print fest. Why isn't the speculative bubble here?
The additional weird thing going on is the steady buying all around the world. Shanghai had seen a constant dozen tonnes of gold delivered every week. This changed a week ago, when Shanghai saw 23 tonnes delivered a day for the week. That level of deliveries was last seen in 2013. Monday and Tuesday saw over 50 tonnes delivered. Last year saw the highest level of gold purchasing by global central banks in 50 years at nearly 500 tonnes in total. There is one major caveat to that number, making it a floor. China is excluded from those numbers. If you think China is not buying any gold for their reserve stockpile, you are fooling yourself. Why isn't there a speculative bubble here?
The other head scratcher is the gold miner sector. Here's the set up. There is demand for the product from large buyers unseen since the '60s. There is a steady price despite a rise in the dollar. There is a huge drop in raw costs for producers with the drop in the price of oil. Their production costs are all lower now with a steady product cost. This should be a slam dunk. If anything, the Chinese should be snatching up Western mining firms (and undeveloped African properties) or their assets. Why isn't the speculative bubble here?
I'm a big believer in holding physical gold rather than using the GLD ETF. I recently found out a little fact about the GLD ETF that made me feel more secure about this approach. The GLD gold holdings are in a custodial vault. Who is the custodian? None other than HSBC. HSBC has been in the news recently for piddly little fines for money laundering for drug dealers and other shenanigans in our banking system. I have little faith in HSBC.
The real trick the financial-academic elite are playing is in boosting dollar strength to allow American dollars to suck up foreign assets cheaper. No QE, threats of raising rates (stop laughing), and chaos elsewhere pushes money into dollar financial assets. What is that dollar strength though? The BRICs are not acting like it is strong. The Russians used last month's crisis to drop over $8 billion in dollars. Convenient excuse for dumping. Zero Hedge reports today they have dumped 20% of their USD holdings, and China dumped dollars, too. Still, we're told the dollar is strong. Look at how the USDX weighting is set up (via La Wik's article).
That is roughly 70% of the USDX weighting against dead men walking currencies. That weighting is the weighting of an old order. A Euro disintegration would have replacement of the euro's 57.6% undoubtedly by pieces of the EU, but would the yuan, ruppe, real, ruble or other currencies find a way to sneak into the mix. Wouldn't the BRICs have a legitimate claim compared to post-euro destroyed European pieces? If they did, would the USDX be so high? What will take the yen's place when it crashes? Unknown, but there are Asian nations itching to take their place.
That is the big trick though. Everyone is itching for a place at the table, making a new table or just breaking the current one. We will see who makes the first move.