What Bafin's König really said about precious metals manipulation

The gold blogosphere is getting all excited by this Bloomberg article on comments by the President of Germany's financial supervisor which they presented (spun?) as "possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal". Some goldbugs are spinning the spin as if Germany's supervisor stated that the gold price is manipulated.

So I did something rare in the gold blogosphere and went looking for the source. Thanks to journalist Ananthalakshmi at Reuters, here is what König actually said, via Google translate:

"Another issue holding us into the new year, the fidelity: the accusations of manipulation around important reference rates. Were initially LIBOR, Euribor & Co. in focus, also allegations were later loudly in the determination of reference values ​​for currency and precious metals markets, it was not received with the right things. These allegations are particularly serious, because such reference values ​​are based - unlike LIBOR and Euribor - typically on actual transactions in liquid markets and not on estimates of the banks.

That this topic in the public beats so high waves, is understandable: It is the financial economy is dependent on the confidence of the general public that it is powerful and it makes honest work. The central reference values ​​seemed beyond doubt - and now the suspicion is in the air, they had been manipulated. Supervisors are busy, work up the past, which is far from trivial and will take some time to complete world.

...

Who will keep an eye on that these private control bodies are actually independent? And to check if Referenzzinsätze be determined in an honest manner such instances? I have my doubts. The markets for money market operations, foreign exchange and precious metals are decentralized. Trading takes place on a large scale rather than bilaterally and not traded on exchanges or exchange-like platforms. Private supervisory bodies may therefore observe and monitor only a relatively small part of the market.

We must therefore go a step further market transparency and market control are only possible if the countless streams are centralized in the markets concerned. One therefore would have to trade in these markets move as far as possible in a transparent and directly or indirectly state-supervised trade places. What is possible with over-the-counter derivatives should also be possible in the related spot markets."

So she just made reference to "allegations" and "suspicions" about manipulation and that these allegations are serious because these reference rates are based on actual trades, not estimates like LIBOR. Not really much new news in this.

I have noted that Bloomberg has been running pretty hard on this story, even organising academics to comment on it. It is worth noting that the allegations are around the WM/Reuters FX fixes. Hmm, nothing maybe to do with the fact that Reuters is a competitor of Bloomberg and that it has a dominant position in the FX reference rates area?

I would also note that the "supervisors are busy" and it "will take some time to complete" the work. Now where have goldbugs heard that before? That's right, the infamous CFTC silver investigation. That certainly took "some time" to complete, and how did that work out?

Certainly, the extent of the LIBOR manipulation means I would not be surprised if collusion between precious metals dealers is revealed, but the CFTC experience should caution goldbugs against counting their chickens before they are hatched. Actually, by the excited blogging and twittering on it, it may be more accurate to say they are sitting at the table with knife and fork licking their lips in anticipation of PM Manipulation Chicken for dinner. Based on past experience, they could go hungry for a long time.

 

PS - note the reference to decentralised precious metals markets and how the OTC spot market should be moved into state-supervised exchanges. Do you think that would just stop at the professional market and not be extended to cover your retail sales? Goldbugs may want to be careful celebrating and promoting these supervisors and their agendas as they may end up being the chicken.

How to know when there is a real physical-paper disconnect developing

FastMarkets are reporting intermittent shortages of 400oz bars in London with premiums for physical delivery "as high as" $0.50 an ounce. In May 2013 I reported that

"We have heard that 99.99% purity bars are getting a sub-one dollar premium, which makes sense as they can directly melt them down and convert to kilo bars for Asia where 99.99% purity bars are getting a premium. Interestingly, we have confirmed that the bullion banks aren't paying a premium to obtain 99.99% 400oz bars (or 99.50% 400oz bars), which is not indicative of desperation for physical on their part."

I therefore put a question in to FastMarkets via Twitter to clarify if the premiums are for 9950 bars, which would be much more significant than if it was just for 9999 bars and am waiting for a reply. The detail is important here, particularly when another source quoted in the article says that "there is gold available in London."

The Perth Mint has not seen such premiums and certainly the bullion banks aren't paying a premium to acquire 400oz bars from us. A journalist at Reuters told me today that "We spoke to one of Switzerland's biggest refiners yesterday and they said that business is quiet at the moment. No mention to shortage of any form of bars." (guarantee you aren't going to hear that on KWN).

This report is a good opportunity to discuss how to know if there is a real physical-paper disconnect occurring. The key is to look at the premium above spot for wholesale metal, which is 9950 400oz bars for gold and 9990 1000oz bars for silver.

Shortage of retail forms of gold and silver, that is anything less than 400oz/1000oz, does not necessarily tell us about whether there is a real shortage, and thus price disconnect, in the wider precious metals markets. A lot of people really struggle with the concept that coin shortages may be the result of production capacity shortages, see here and here, for example. You have to rule out production issues first, which in my opinion will be hard to do as when we get some real retail demand I don't think the industry can cope, as I discussed here.

The reason premiums on wholesale forms is the indicator is because the spot price is the price for unallocated, that is, paper gold in London. That is how most trades are settled and if you want physical then a separate physical redemption instruction is issued. As such the industry works on premiums to spot for whatever form and in whatever loco (as spot gold has different prices in different locations).

The problem with this way of pricing (spot + premium, or pay me unallocated gold + $ premium for physical) is that it "hides" any physical-paper disconnect that may be occurring.

For example, say the gold price is stable at $1200 but 400oz bars start to become rare and hard to get, and the premium to acquire them reaches say, $10 an ounce. Then what will happen is dealers will be buying unallocated gold at a "spot" of $1200 and redeeming the unallocated and paying $10 premium separately. However, what will be reported by Reuters and Bloomberg data feed services (on which all the websites rely) is just $1200, not $1210.

This idea of unallocated spot + premium is heavily embedded in most of the industry. To them, loco premiums/discounts and premiums for various forms of physical are normal. They do not think about a physical-paper disconnect and initially may just see premiums on 400oz as unusual but not extraordinary. They certainly won't initially see the premium as a potential precursor to a bullion bank run and so may not consider it worthy to write or commentate about - their frame of reference is that the existing system has survived in the past and thus will continue to survive.

Unless you are in the professional market you won't see this occurring. I will endeavour to report on it if we see it, but you don't have to rely on me as there is another indicator. I would suggest keeping an eye on Bullion Vault or GoldMoney. These two services are backed by 400oz bars. If there is a real shortage of 400oz bars and thus premiums being asked, then you should see one or both of these being reported by these two services:

1. A widening of their normal buy/sell spread, or additional fee on purchases, to cover the premium they are being charged on 400oz bars.

2. They stop taking in new clients due to an inability to acquire 400oz bars.

Now some people, like Jim H, may think that I am not "really here to support me, the common man, [but] the State, who ultimately holds the key to your paycheck" and thus you can't believe what I say about shortages or premiums in the wholesale market, but I doubt anyone thinks that James Turk and GoldMoney are part of the Cartel, so I think you're safe watching them for signs of that a real physical-paper disconnect is developing. Anything else is probably rumor and hype.

 

Added 6/9/2023: https://www.bloomberg.com/news/articles/2022-05-19/boe-gold-trades-at-rare-discount-in-sign-of-central-bank-selling via https://gata.org/node/21949

Gold stored at the Bank of England has been trading at an unusually low price, in a sign that central banks may be shedding some of their holdings.

The Bank of England’s vaults contain 5,676 tons of bullion, one of the largest stockpiles in the world, which it holds on behalf of other central and commercial banks. Gold held by central banks is typically bought and sold between large institutions in bilateral trades at prices usually within a few cents of the market rate.

In recent days, however, gold at the BOE traded as much as a dollar an ounce beneath benchmark London prices, according to traders familiar with the matter. Such a big discount usually indicates a big institution like a central bank selling a sizable amount of reserves to raise US dollars or other currencies, one of the traders said. ...

The BOE gold discount has narrowed since the dollar-an-ounce margin, but remains large by normal standards, said the people, who asked not be identified discussing private information. Bullion has slipped more than 12% since peaking in March, leaving it close to unchanged this year.

https://gata.org/node/21189

Gold at BOE Commands High Premium, Signaling Central Bank Buying

Thursday, May 27, 2021

https://finance.yahoo.com/news/gold-boe-commands-high-premium-194455336.html

Gold stored at the Bank of England has been selling for unusually high premiums recently, signaling that central banks may be back in the market buying.

The gold in the Bank of England's London reserves -- one of the largest stashes of bullion in the world -- is stored and sold on behalf of other central and commercial banks as opposed to being owned by the Bank of England itself. It usually trades within a few cents an ounce of gold held at other London vaults run by commercial banks such as JPMorgan Chase & Co.

But in the past week, gold sold from the Bank of England has traded for as much as 50 cents above benchmark London prices, according to bullion traders. These premiums are at least in part being driven by buying from the Bank for International Settlements, which regularly trades gold on behalf of the world's central banks, a person with direct knowledge said, asking not to be identified because the information isn’t public.

The BIS bought as much as 1 million ounces of Bank of England metal from various commercial banks at a premium of 30 to 40 cents recently, one person said. The premium for gold at the Bank of England rose to as much as 50 cents an ounce late last week before tapering off to about 20 to 40 cents, according to bullion traders. That compares with a range of zero to 20 cents during normal circumstances, the traders said.

The buying may be a sign that one or several central banks are increasing their gold reserves, bullion traders said.

Use narratives, not just charts, to tell if gold's bottom may be near

To determine if gold may be bottoming, I think Ben Hunt's game theory approach to investment decisions is a useful framework to use. First, a quick summary of Ben's theory, mashing up his words from this article:

"Game theory is a methodology for understanding strategic decision making within informational constraints where each player’s decisions are made in the context of expectations regarding the other player’s decision-making process. In other words, playing the player, not the cards.

The secret of effective market game-playing is to recognize that the market game hinges on the Narrative, which is a set of public statements made by influential people about the market. These statements create Common Knowledge - what everyone knows that everyone knows."

Goldbugs have their own narratives to explain gold price movements but as I discussed in this post, what matters is the narrative that mainstream investors are hearing as that is what is driving their investment decisions and money flow (in or out of gold).

Over the past year the mainstream narrative has been that "gold is in a bear market and shows no sign of ending". The focus for this narrative was the reduction in ETF balances, with each subsequent redemption validating the thesis, acting as a negative feedback loop. On top of that you had the idea that the US economy was turning around and the associated taper talk.

For example, see this Gulf News article where it says that gold buyers (my bolding) "were put off by gold price’s sharp decline and did not want to be seen buying when there was every chance that it could drop further" or analysts falling over themselves to forecast a lower gold price bottom than the last forecast.

Recently, however, I've noticed the emergence of a different narrative, one that asks whether gold's bottom may be near. See these recent examples:

AFR: Gold is on the way back

Barrons: Gold Fund May Be Near Bottom

City Index: Gold rebounds from three-year double-bottom low

CNBC: Gold to see bottom building process

Daily FX: How to Trade the Double Bottom on Gold

Now this narrative is not bullish and more cautious but that in itself is significant because it is the precursor to more bullish narratives. It also gives confidence to smart money to start to get into the market, as we can see from that Gulf News article where it notes that "with gold prices seeming to have settled in at the $1,200 an ounce mark, buyers are heading back to the shops."

I would also note Rick Rule's recent observation that "it appears big money is circling the physical sector as well. The money has not yet ‘landed,’ but it is important to know what might happen to those markets if the ‘big money’ begins to settle. We believe it would not take much demand for physical delivery on the futures exchanges to create a very unsettling experience for the large institutions that are short the trade."

When the gold price bottomed at $250, there was talk of it going to $200 or below, which was mine cost at that time. It never got there because the smart money realised that at those prices gold miners would start to close and the supply reduction would push prices up. I believe they started to buy ahead of that, and those actions provided support and the basis of a new narrative for gold.

We could be seeing the same dynamic in play today. I'd suggest keeping an eye on the mainstream narrative around gold, just as much as the charts, if you want to work out if gold is bottoming.

Why Gold Can Never Be In A Bubble

I have a post up on the corporate blog discussing a Harvard Business Review blog which attempts to get to the bottom of what constitutes a bubble.

If a bubble is when price exceeds an asset’s fundamental value, and according to people like Barry Ritholtz gold doesn’t have a fundamental value, then its price doesn’t have anything to exceed and hence it can never be in a bubble.

That is a bit of a flippant argument and and click baitish, but it was an intro in a quote by Eugene Fama from the HBR blog that I was more interested in:

“During the dot-com era … the high prices of startups like Amazon.com and Pets.com could be justified as rational gambles in the face of great uncertainty. It wasn’t crazy to think that a couple of these companies might end up as big and as profitable as Microsoft, and since it was hard to tell which ones it would be, high prices across the board made some sense.”

Isn't gold just a “rational gamble in the face of great uncertainty” about whether a country (or the world) can get itself out of its financial mess without unintended inflation or some other economic blow up?

Therefore arguing that gold is in a bubble is just arguing that people are paying too much for the insurance against uncertainty as they see it. That IMO is just a judgment call and who can claim they know their judgment is right and another’s is not?

Gaming futures and stocks

A short note on this FT Alphaville article on a 1921 (US) Federal Trade Commission report on the grain trade. I think it is a must read follow up to my post on Comex stocks. This is the money quote:

"Private elevator companies with houses that are “regular” under exchange rules are often in position to influence the course of the futures market through their control of a large quantity of deliverable grain. A large elevator, or a group of elevators, may make heavy deliveries on the first day of a delivery month with a view to such manipulation. By this manoeuvre, long buyers of futures who do not wish to bother with the cash grain will be impelled to sell hastily, thus depressing the current-delivery future price relatively to the price for the next delivery of futures.

The elevators will then by able to transfer their open hedges to the next delivery on the basis of a profitable spread between the two options, buying in the current option and selling the next option. They may also be able to buy back the cash grain at a sufficiently depressed price to give them a larger carrying charge. Similarly, if the elevators withhold delivery on a large block of open future sales until the end of the delivery month, smaller traders may become apprehensive and start selling for fear of a reaction when delivery is made. A large elevator company is usually on the alert for opportunities to make profits by spreading between options, and is sometimes in position to make such opportunities. The elevators with large stocks of grain hedged and storage available for additional supplies have advantages over speculators not so equipped; and if such elevators operate together they may sometimes control the local situation."

Now grain and gold are different markets (grain doesn't have 60+ years above ground stock) but it is just another caveat on interpretation of visible data sources and ignoring what may be occurring off market or in OTC market.

Coin shortages and rationing are in our future

The extraordinary demand for precious metals coins following the 2008 global financial crisis caught the minting industry by surprise, resulting in never before seen coin rationing and shortages.

It seems not much has changed, with recent reports that the UK Royal Mint ran out of 2014 Sovereign gold coins due to "exceptional demand", as well as the continuation for over one year of an allocation program first put into place early 2013 by the US Mint on its ever popular silver Eagle bullion coins.

While these recent events have been limited to specific coins, with availability of other leading bullion coins like the Perth Mint’s gold Kangaroo not affected, it does seem to indicate that worldwide minting production capacity is still unable to meet demand surges. I have been talking about this issue for some time, as in this July 2012 interview and here.

The 2008 global financial crisis did result in private and public mints expanding their production capacity. The Perth Mint, for example, has spent over $50m since 2008 on improvements to existing machinery as well as new and expanded facilities.

However, it is little appreciated that the bottleneck in the global coin minting process is blank (planchet) manufacture. This is a far more complex process than simple stamping of a coin, particularly around purity and accurate weight control. As a result, blank manufacture is a process that benefits from economies of scale and thus few mints these days make their own blanks, outsourcing the process to a limited number of private and public suppliers, of which the Perth Mint is one.

If you dig deep, you will find that many of the coin supply problems come from underestimation of demand and the resulting exhausting of blank inventories. Often, blank suppliers are mints themselves and can face conflicts where they earn more by prioritising blanks for internal use rather than supply externally. Running higher blank inventories is often not an option, due to the cost of funding the high dollar value of the inventory.

To get an idea of how high coin premiums can go when coin demand overwhelms production capacity, consider this chart from Nick at www.sharelynx.com

The 2008 premiums were celebrated by some at that time as a proof of a physical-paper price disconnect and a "good thing". The fact is that there was plenty of supply of the raw gold or silver (the Perth Mint at one stage was shipping in 20 tonnes of silver each week for weeks on end from London with no problems). High premiums are actually not a good thing, because it means that the same money buys (and takes off the market) less ounces.

 

Notwithstanding the capacity expansion by blank suppliers over the past five years, in my opinion there is no way the industry can meet the demand that would occur were precious metals to see even a small bit of interest from the mass market. While cast bars are a lot easier to make and refiners have much more casting production capacity, I am not even sure if it could meet sustained mass market demand.

For now 2008 style shortages and rationing don't seem to be on the horizon but the fact that the UK and US Mint are having supply issues on a few of their product with metal prices at these low levels is an idicator that as prices rise and (re)attract investor interest, shortages and rationing may become a reality of coin buying life again.

Are increased Indian scrap levels actually smuggled gold?

This theory was emailed to me by a reader and I thought it worthy of a wider audience. The chart below shows the WGC's estimates of supply of scrap inside India. Note the sudden increase in the third quater of 2013, which is significantly above the usual amount.

The last time this amount of scrap came into the market was in Q1 2009. The WGC explained at the time this way:

"When the gold price initially spiked in late 2008/early 2009, the local media were talking of a sizeable correction (not just in rupee terms, but also in $US terms). This is a key reason why recycling activity was so strong at that time - local scrap dealers reported queues stretching for blocks. The magnitude of this selling back reflected a belief that the jewellery could be repurchased at more attractive price levels at a later date."

With the gold price at lows, and gold hard to to get in India, I can't see there being a similar motivation for Indian's to sell their gold this time. Therefore my readers theory is that:

"Indian Jewelers will not want the Indian Government to think their gold import tax policy is not working. Thus, gold purchased from smugglers will be increasingly reported by jewelers as Scrap/Recycled and they will report record demand of Indians turning in their old jewelry to be updated to new, fashionable designs."

 

I find this explanation compelling, considering that a jeweller acquiring smuggled gold needs a cover story to explain how they got that gold, and claiming it was scrap is a good (and unverifiable) way to do that.

 

I will be interesting to see the amount of Indian scrap the WGC reports in their Q4 2013 Demand Trends report when it comes out in a couple of months.

In the land of the goldbugs who choose to be blind, the one-eyed blogger is king

I have a post up on the corporate blog about Comex stocks coverage (owners per ounce) talking about yet another example of the one-eyedness (a mind not open to all the data and varying interpretations) I discussed in yesterday's post. The post is a rework/expansion on this personal blog post on Comex stocks.

The interesting thing to me about those bloggers who have been using Nick Laird's owners per ounce charts for registered gold and its current 80:1 ratio is that to get to that chart you have to scroll past the chart for total gold stock and its 5:1 ratio. In other words you have to wilfully ignore the 5:1 ratio and the big difference between this and the 80:1 ratio.

Now I can admit that maybe such bloggers disagree with my views that you have to look at both eligible and registered stocks (although I fail to see how when there is over 5 million ounces of conversion volume between the two categories during 2013) in assessing the likelihood of a Comex default or shortage of gold, but surely anyone who isn't one-eyed would want to at least discuss/explain the 80:1 and 5:1 discrepancy to their readers?

For those who like to use both of their eyes, consider these points from the corporate post:

1. people only keep metal in a Comex deliverable form and in Comex warehouses because they are expecting to sell it back in the futures (if they took it off eligible there would be costs to get it accepted back as eligible) and they will sell it if the price is right

2. sellers may try and "hide" their intention to sell by holding eligible (making it look like gold is not available for delivery and thus get the price bid up) then at the last minute instantly change their gold to registered status

3. Silver Doctor's theory that “the owners [or eligible] would likely be strong-armed or forced into converting their eligible supplies into registered should things become desperate for the cartel

4. 2.6 million ounces (80 tonnes) was converted from eligible to registered, indicative of point 2

5. 3.2 million ounces (100 tonnes) was converted from registered to eligible, indicative of strong hand longs standing for delivery?

With some points from this post:

5. you can deliver 3 kilo bars against a Comex futures contract (note there is a cash adjustment for any over/under ounces as the result of delivery of odd weight 100oz bars or kilo bars against a futures contract)

6. BBs have been proven to deliver tonnes of kilo bars into Comex warehouses, this could indicate weak markets where they park metal until demand returns (see here: " the owner may simply want to vault their metal securely, before using it to meet demand elsewhere – for manufacturing, or from investors in another marketplace, such as Asia")

7. consequently, movements of round ounce tonne lots, indicative of kilo bars, out of the warehouses may be an advance bullish signal of Asian demand returning

And this interesting story from Martin Armstrong:

8. "To create the fundamental, they moved inventory from New York to London. They were manipulating silver as always. Playing games with the inventories. They were moving silver from New York to London where the Buffett orders were being executed. This made the US warehouse inventories drop sharply." to give the impression of a shortage of silver

And finish with this interesting point made to me in an email by a Mr D:

9. A BB is only legally obliged to deliver from registered stock. Failure to deliver eligible gold wouldn’t be a default. So this eligible gold could be safely used as the basis for a lot of transactions outside Comex that are completely opaque while it the gold remains on show to the Comex punters

I think all the above makes a strong case for looking at the total Comex stocks (both eligible and registered). I personally think the Martin Armstrong story is the most telling. By focusing on the 80:1 ratio bloggers may well be (hopefully innocently) helping those playing games with reported warehouse stocks.

 

I'd like to think that after this gold bear market the eligible stocks are now mostly held by strong hands rather than just being BB inventories, and thus a squeeze is in play, but I'm keeping my mind (and both eyes) open to the fact that the figures may be gamed. I hope you also choose to not be blind.

The secret gold demand indicator

In yesterday's post I had a footnote on reports that Perth Mint sales were up 41%. That figure got a lot of coverage and was taken as a general positive statement on gold demand. However the figure is only part of the story and highlights a deficiency in understanding demand in the gold market.

To restate, the figures reported were just in respect of our minted coins and minted bar sales. These represent at best 10% of the volume of gold we sell each year. As such, the 750koz we sold of minted products can only be taken as an indicator of positive retail demand.

The follow up question that Kid Dynamite asked me was how much of a percentage increase did we have on the remaining 90%, the majority of which is sold in tonne lots as kilobars into the Asian markets.

Now I bet most people would expect me to report some similar large percentage increase, given all the coverage of how much gold is imported into China and traded on the SGE. Unfortunately we don't reveal those hard figures but I can tell you that circa it was not up or down by much. Why?

The reason is that the Perth Mint sells pretty much the same amount of gold each year, because the mines that refine with us mine it at a pretty consistent rate. Now we also refine scrap, which changes a lot in response to price, so our total throughput (and the resulting "sales" of the refined gold) does change.

But, can we really consider sales of gold from scrap sources as "demand", when there was obviously a seller dishoarding it at the other end. That is surely a wash, is it not? But also, doesn't that logic apply to the sales of gold from newly mined sources, as there is a miner selling (supplying) on the other side of the demand?

For example, would it make sense to say that demand was up for Apple stock today because more shares (volume) were traded today compared to yesterday? Of course not, as the total number of Apple shares is the same and all that has happened is that ownership of those shares has changed hands. Volume is certainly a useful metric, but it doesn't tell you about demand.

Since all the gold that has been mined still exists, gold is like a company stock - it is just the ownership that is changing. Some may argue that newly mined gold adds to this stock, so this is the demand. But the problem with that is that mine production is relatively consistent. Saying that newly mined gold = demand would just have you reporting demand of 1-2% every year. That is not useful.

My point is that for every buyer (demand), there is a seller (supply), so just reporting a volume sold figure doesn't actually tell us if demand is "up". Selective reporting of one segment of the gold market that "sales in ounces of X are up" is just PR spin, or narrative building. It is not actually telling you if demand is up or down at all.

So how can we determine the state of gold demand? The only real way is to look at the intraday order book listing the volume for all bids and offers in the market and observing whether there were more bids (buyers) or offers (sellers). But I've rarely seen journalists or bloggers refer to this when they say demand is up or down. Reason is it is hard to get and analyse such data.

Plus you have the problem with the gold market that most of the trading is not done on exchanges, so you don't know the depth of the bids or offers on gold around the world. So how can we work out if demand for gold is up or down?

Well there is another shortcut measure to get around this problem and tell us what is going on with gold demand. I will now reveal this secret indicator. It is secret because right now I don't see many goldbugs using it at all.

This is how it works. If you have more people bidding to buy than there are people offering to sell, then the gold price will go up. This indicates more demand (buying power). And if there are more sellers than buyers bidding, the price will go down and indicate less demand.

Excuse the sarcasm, but price tells you about demand vs supply. Of course the permabull goldbugs cannot accept this because the gold price has been falling and that is a negative. They can only deal in positives (as you aren't going to sell a newsletter or coins with negatives) so they ignore price (except when it is going up) and construct a narrative on the basis of selective information.

The gold price is down because demand is down. Get over it. I own gold but do you see me crying about it? If you are so insecure about your gold investment and the reasons why you bought it that you can't accept the negative price action and look for reassuring bedtime stories about how demand for gold is great even though the price is going down then you shouldn't be in gold in the first place.

Gold is a tough, opaque and volatile market. Whether you are holding gold as insurance or a trade, it therefore requires an mind open to all the data and varying interpretations and some adult maturity, otherwise those just looking for positive data and cognitive bias will get screwed. Time to man up, or woman up, and stop acting like a baby.

Reinhart and Rogoff: 1933 US gold reprice was a debt default

In this IMF Working Paper by Reinhart and Rogoff "Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten" they state that

"... the United States had already defaulted on its sovereign debt in April 1933 to domestic and external creditors alike. The abrogation of the gold clause in conjunction with a subsequent 40 percent reduction in the gold content of the U.S. dollar (January 1934) also amounted to a debt haircut amounting to about 16 percent of GDP."

Nice to see mainstream economists calling a spade a spade and a handy link to use next time someone says the US never defaulted on its debt (links from goldbug sites don't count, we are all biased you know).

The rest of the paper is a depressing read, with Reinhart and Rogoff concluding that a "mix of austerity, forbearance and growth" will not get advanced economies out of their debt overhangs and that they will have to "resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression."

While this is all stuff gold followers are aware of, it is the continued appearance of this financial repression narrative and related bail in and other talk in mainstream circles that I think is more important. As it becomes accepted wisdom that this the path we are on, then we will see money move into gold. However, while the mainstream continue to believe that we don't have a big debt overhang and with a bit of taper here and there it will all end up peachy pie, we are going to see gold languish.

PS, if my mum saw the reports of Perth Mint sales up 41%, then no doubt you have as well. Just some caveats: the figures reported are just our minted coins and minted bar sales, and do not include volumes from our Depository business or cast bars (ie kilobars) sold into China etc. They thus represent less than 10% of the metal we refine and is more of an indicator of retail demand. Having said that, we are currently achieving solid premiums on kilobars ahead of the Chinese New Year.