21 April 2013

If they didn't warn, then don't listen

So every gold commentator has an opinion on gold's drop. My question is if they didn't warn you beforehand about the risk of a big drop, why pay attention to what they have to say about it after the fact? That is my response to Gordon's comment.

I find it particularly amusing that those who purport to have inside information on the physical market or contact with deeply embedded kingpins did not warn their readers that the market setup was weak, that central banks would not be buying aggressively on the dips and in increasing size at $x price. Yet their followers still think they are gurus.

I could say that they either knew and traded against you, or that their contacts are no good, or that their contacts knew but fed them wrong information (ie they are being played) because their contact knows they have a wide audience and wanted to trade against the guru's followers, or that they are just frauds and don't have any contacts and just make up those stories as it sounds a lot sexier than just saying "my opinion is". I think the most likely answer is just that the gold market is an opaque over-the-counter market where participants only have a view of (their) part of the market.

From my part of the market weeks before the crash the Perth Mint was getting a strong bid from bullion banks for our refining output as kilo bars into Asia. I only really watch those premiums as they are for tonnes at a time and we are about 10% of new mine production. So if you asked me I would have said the physical market was looking good.

So the drop was leveraged paper longs head-to-head against paper shorts. Yes the shorts don't have the gold, but obviously the longs don't have the cash either, otherwise they wouldn't have had any problem meeting margin calls and being ready to stand for delivery.

This is a case of the tide receding and finding out who is swimming naked. That is, we now know that when gold was $1900 it was composed of $1300 of strong hands and $600 of speculative weak money. That is the lesson to remember for next time gold has a run - ask yourself how much of the price is strong and how much speculative.

But why listen to me? I didn't warn you beforehand.


  1. Thanks, Bron. Appreciate your remarks very much.

  2. Well said Bron.
    Thanks for the input.

  3. Very good post, Bron. It needed saying.

    For what it's worth, I warned and warned and warned. I got so sick of the flaming that I gave up and left...

    Just a couple out of the many articles worth a re-read in retrospect...

    October 2012

    December 2012

  4. »(…) did not warn their readers that the market setup was weak, that central banks would not be buying aggressively on the dips and in increasing size at $x price (…)«
    Some did. Since very long. You see, the only thing which can’t be predicted is date and time of collapse. But GLD collapse is for sure.
    Read FOFOA.

  5. Search for FOFOA on my blog, I'v read plenty of him. I don't see GLD "failing".

  6. Thank you, Bron.

    That's exactly what I wanted to know - confirmation that the rumours/guru statements about strong Asian demand were true, and from the horses mouth so to speak. All the rest, I agree, is fluff and conjecture, together with not so subtle marketing.

    Sorry if my previous comment seemed harsh or rude. It wasn't meant to be but having lost a lot of paper profits in my unallocated account I was dithering as to whether to take the loss and avoid further potential losses, or to ride it out. I guess I was frustrated at being unable to see professional confirmation of strong buying. So many rumours.

    Best wishes,

  7. Bron,

    Nice post. Two questions 4 u ( obviously understood if confidentiality prevents direct answers)

    1. A few months ago, u had mentioned HNW retail buying more physical iirc, is that still happening? Stronger, weaker? Any upset physical clients complaining after the drop? Or buying more?

    2. Can u define strong premiums from BB? IE. typical sales is xxx tonnes w/xxx premium? Or does it not work that way?

    Again, thanks for the blog. I always find your posts worth the read!


  8. Search for FOFOA on my blog, I'v read plenty of him. I don't see GLD "failing".

    Don't you consider GLD paper?
    What do you think Another meant by "All paper will burn"

    I thought you did understand FOFOA, so I am kind of surprised by that statement.

  9. Milamber,

    Depository has not seen the same sort of volume jump as shop/online coin/bar sales. Also a bit more selling.

    We refine around 300t a year, so that is 6t a week we sell. Can't reveal premiums, but when a bullion bank is buying $50 million worth of gold, they certainly aren't paying retail.

  10. When Another wrote there were no ETFs, nor GoldMoneys, which are all paper as they are not physical in your hand. His statements need to be read in that context.

    Which of the physically backed paper products will survive stressed financial markets depends on what level of "stress" you are talking about and their structures and controls.

    GLD and others may surprise at how robust they are, which is not to say they will survive all extreme scenarios.

    Black and white statements like all paper will burn hide the complexity of the situation and alternative options and realistic risk assessments vs costs.

  11. I took "all paper" to mean all paper instruments denominated in Dollars.

    Isn't GLD denominated in Dollars?

    Yeah it could survive if they moved over to Euro, as FOFOA in his latest article explains.

  12. Bron,

    Thanks for the feedback. That is interesting about the depository side seeing more selling.

    Also, can you give generalities regarding $50MillionUSD gold orders that Perth Mint does? IE I used the term premium when I really meant discount. I thought I had read either you (or maybe it was KD) say that on large orders you pay less than retail because you are placing a large order. Is that correct (in your experience)?

    And can you speak in generalities regarding premiums/discounts w/o getting in trouble? IE a $50M USD order gets a discount of between 5-25% off spot. I completely understand if you can't comment one way or the other and won't ask again. But I am curious to see how different things are when a BB places a large order for gold vs a Central Bank (IE the deals that Another spoke of).

    Any Central Banks ever come calling? :)



    p.s any chance you will be joining the twitterati anytime?

  13. No one gets a discount off the spot price, what I meant was that they get a discount off the fabrication premium.

    When you have $300 million worth of kilo gold bars to sell per week, it is not done on fixed fabrication price list. Bullion banks bid/compete and the one who offers the highest fabrication premium gets the metal.

    I find twitter's length restriction too limiting.

  14. GLD is denominated in ounces, it just trades on a US exchange. Someone in Europe could buy it and they would have Euro gold exposure, because their buying and sellin of GLD is intermediated by FX markets.

  15. Bron,

    Oh thanks for clarifying. I thought I had read that when you buy in Bulk you get a discount off spot (I was thinking you or KD had written that), but glad to be set straight.

    Interesting. So the BB's come calling and you the Perth Mint (along with other sources of physical) decide based on who pays the best fab premium gets the gold.

    I assume that is not published anywhere? IE industry avg fab premiums or is it tracked (publicly).

    I am trying (obviously as an outsider) to get a feel for how desperate BB's are to get new gold coming into their respective "web"

    Thanks again for your time.


    p.s. agreed on twitter regarding discussions. But it would be nice to have you in my stream and see what you tweet out as far as interesting tidbits that you (as a refiner) see in real time. Just a thought

  16. I was wondering why the mints prices vary so much from the spot price. When I last looked 10 oz silver was 26% above the spot price. Now days later despite the silver spot price rising the mints sell price is virtually unchanged. I assume you price your sales on what you paid for your stock.

  17. We don't price our products on what we pay for the metal - we don't buy the metal beforehand, we don't "own" our metal. All our prices are based off spot plus fixed fabrication premiums. Where are you looking for those prices?