14 May 2011

Depository Fear Index

Did a post on the corporate blog about changes in the percentage of metal held by Depository in allocated form. I see it as a sort of a “fear index” as it can indicate a change in clients’ perception of economic uncertainty and risk. It has declined from 25% in 1999 to 5% in 2007 but has risen since then to 15% - risk aversion is back baby and I can only see it increasing. This will make our coin guys happy.

8 comments:

Justin said...

That's interesting Bron. Do you have the figures for 1979-1980?

Could it possibly be extrapolated on a global scale? Take for example the peak in the gold price 1980. I know from RBA data that from early 1982 there was a rapid & sustained buildup of foreign exchange reserves at the RBA, that is, the RBA was buying a pile of most likely US debt. If the RBA started in 1982, other central banks may have started earlier.

This buying would have bid up US debt reducing 'credit spreads' & hence your uncertainty. Possibly leading to a 'dishoarding' of gold (allocated to unallocated)? We can assume that much 'unallocated' gold is 'fractional reserve' gold, whose stocks to flows ratio & thus marginal utility, thus price, can be manipulated seemingly at will by the 'big players'.

A plausible theory?

Justin said...

I'm not accusing the Perth Mint of fractional reserving.

Bron said...

In 1980 we were just running a small storage service for locals and there wasn't any unallocated, so I don't think we have any data to draw conclusions on.

Justin said...

You must have ounce figures for the depository in 1979-1980 then?

What if we call the $ itself unallocated gold? Stretches the mind a bit I know but I see a pattern emerging.

Bron said...

There wasn't anything call "depository" then. I only know we were offering some sort of storage service because there are some shop "certificates" that were recorded in the shop's computer system dated from that time.

The shop computer system came online in 1992, there are no records before that, except maybe paper transactions buried in the archives, so the computerised records we have only represent an "as at" state in 1992 - no transaction history prior to that.

It will be something I'll dig into one day.

costata said...

Hi Bron,

The index might be even higher if you had stats on the number of people who went from unallocated to physical. That's what we did.

Has there been any progress on making it more explicit that unallocated certificate holders will be first in line for fabricated metal if redemptions overwhelm your production capacity?

I think that would be a huge selling point for your custody services. BTW I have a personal stake in this. I'm responsible for another person's certificates who doesn't want to hold physical for some sound reasons. I would sleep better at night if there was an explicit guarrantee.

In a SHTF scenario I would try to find a solution to the problem of secure storage of their physical metal but it would add a layer of security if there was a guarrantee of fabricated product attached to the certificates.

I expect the paper entitlement would sell at a small discount to the physical so a cash value alternative would probably be available in a secondary market if the Mint didn't want to payout on the metal.

Bron said...

"had stats on the number of people who went from unallocated to physical"

you mean you took delivery? or converted from unallocated to allocated. In the case of the former, that has been very minor. In the case of the latter, the chart does include that effect in it.

"Has there been any progress on making it more explicit that unallocated certificate holders will be first in line for fabricated metal if redemptions overwhelm your production capacity?"

No, but consider that we have a legal obligation to make delivery for depository holders vs no legal obligation to sell metal to over the counter clients. So when push comes to shove we will priority depository as those are the one who can sue us.

"I expect the paper entitlement would sell at a small discount to the physical so a cash value alternative would probably be available in a secondary market if the Mint didn't want to payout on the metal."

We would never not want to deliver metal. We may have capacity issues, but that is not the same as not wanting to deliver.

You will always be able to sell your depository metal back to us for cash at whatever the spot market is paying, so I can't see why anyone would want to sell their depository metal for a discounted cash amount to another person.

costata said...

Hi Bron,

Thanks for the reply and clarification.

Cheers