Gold and silver have recovered somewhat from slight falls in Asia overnight and are now higher against the British pound and Swiss franc which are weaker this morning. With geopolitical instability looking set to escalate and the real possibility of a military confrontation in the Mediterranean, any sell off in the precious metals will likely be tentative.
Cross Currency and Precious Metal Table
$1,500/oz for gold and $40/oz for silver remain viable short term targets and any price dip should be seen as a buying opportunity. Bullion dealers, including GoldCore, are experiencing only tentative buying and indeed some selling; buying of bullion is nowhere near the levels seen during the Bear Stearns, Lehman Brothers or more recent Eurozone sovereign debt crises.
Total Known Gold ETF Holdings
The lack of animal spirits in the gold and silver bullion markets is also seen in the decline of the gold ETF holdings (see chart above) and the Commitment of Traders open interest (see below). Neither show any signs of speculative fever whatsoever.
This would suggest that the recent record prices are due to short covering on the COMEX (possibly by Wall Street banks with concentrated short positions as alleged by the Gold Anti-Trust Action Committee or GATA and being investigated by the CFTC) and buying of bullion in the Middle East and Asia, particularly in China.
While all the focus is on the geopolitical risk in the Mediterranean, the not insignificant risks posed by the European sovereign crisis, the possibility of a US municipal and sovereign debt crisis and continuing currency debasement internationally are the prime drivers of gold today.
Quantitative easing, debt monetisation and competitive currency devaluations have not gone away and are leading to deepening inflation which will likely result in much higher prices in 2011 and 2012.
Enter the Chinese Gold Dragon
Overnight, UBS confirmed in a Bloomberg article that China alone imported a massive 200 metric tonnes of gold in just the first two months of 2011. This gold is being bought by China's 1.3 billion people in order to protect against surging inflation (see news).
The FT last week quoted a senior executive of the world's largest bank by market capitalisation Industrial and Commercial Bank of China Ltd. (ICBC) about the voracious appetite for gold in China. ICBC bank has in some two months opened gold savings accounts for more than 1 million savers with more than 12 tons of gold stored on their behalf.
Shopping malls in China are experiencing massive buying of gold jewellery and ingots as shoppers buy gold as a store of wealth in order to protect against surging food and energy inflation. Statistics from Beijing Caibai, Beijing's largest jewellry store, show sales of gold bars and jewellry have totaled an incredible 4 billion yuan or about $600 million US dollars so far this year, a 70-percent increase year-on-year (see news).
This demand is only the demand from Chinese investors and savers. It does not include purchases by the less than transparent People's Bank of China who are almost certainly continuing to diversify their massive nearing $3 trillion currency reserves into gold bullion in order to protect themselves from their massive dollar ($1.6 trillion dollars of US debt alone, according to the Treasury Department) and other currency exposure.
Chinese Yuan Gold Standard
China is clearly trying to position the yuan or renminbi as the alternative global reserve currency. The Chinese likely realise that they will need to surpass the Federal Reserve's official, but unaudited, gold holding of 8,133.5 tonnes. China is the sixth largest holder of gold reserves in the world today and officially has reserves of 1054.1 tonnes which is less than half those of even Euro debtor nations France and Italy who are believed to have 2,435.4 and 2,451.8 tonnes respectively.
China's ambitions to rival and even supplant the dollar were seen overnight with news that China is to allow all exporters and importers to settle their cross-border trades in the yuan this year. The People's Bank of China said that it was part of plans to grow the currency's international role and would respond to overseas demand for the yuan to be used as a reserve currency.
Russia is also attempting to position the Russian ruble as a global reserve currency (see news).
World Bank President Robert Zoellick recently mooted the possibility of a return to some form of gold standard. It seems extremely likely that senior and influential Chinese policy makers, bankers and government officials may be having similar thoughts.
The lack of knowledge of the vast majority of people about gold and the very important developments in the gold markets with significant macroeconomic, monetary and geopolitical ramifications is hardly indicative of a bubble.
Nor is the instinctual aversion and bias against gold by some today. Indeed, the negativity displayed against gold by a minority (normally vested interests offering other investment or saving products) in recent years and continuing today may be partly due to some feeling unwise due to their failure to predict gold's rise and return as a global currency.
The significant and continuing price appreciation of something they don't own, they don't understand and did not advise people to diversify into has some looking somewhat imprudent.
Gold is trading at $1,428.10/oz, €1,030.45/oz and £877.86/oz.
Silver is trading at $34.49/oz, €24.89/oz and £21.20/oz.
Platinum Group Metals
Platinum is trading at $1,841.25/oz, palladium at $815.00/oz and rhodium at $2,350/oz.