Reflections In A Golden Eye: Confluence Of Events Drives Renewed Investor Interest

Reflection: Tightness in the gold and silver coin and bullion markets

"My baseline is they [the Chinese] have been buying and the Indians have been buying in enormous quantities. It's virtually impossible to get physical gold in London to ship to those countries. We get permanent requests from Russia, would we please sell our physical gold to India and China. Because there is no physical, only endless promises. And I really worry that the market, that paper market, could be stamped on and people will say 'sorry we'll have a financial close out,' and it's all over."

Peter Hambro, Petropavlovsk, 9/9/2015

Editor's note: For those of you unfamiliar with Peter Hambro, he is the highly respected head of a Russian mining company and one of the world's foremost gold analysts. When you listen to this interview, your gold broker at USAGOLD will no doubt come to mind as his message runs parallel to ours.

Please see Peter Hambro's Bloomberg interview: Is gold still a safe haven asset?

"The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants. '[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,' said Jon Butler, analyst at Mitsubishi. The move comes as Indian gold demand picked up in July, with shipments of gold from Switzerland to India more than trebling. Most of that gold is likely to originally come from London before it is melted down into kilobars by Swiss refineries, according to analysts."

Henry Sanderson, Financial Times, 9/2/2015

"If the calculations above are correct about the 500,000 Good Delivery bars in the London vaults whittling down to about 130 tonnes of gold that's not accounted for by ETFs and other known gold holders, and that's not accounted for by the Bank of England vault holdings, then there is surely very little available and unencumbered gold right now in the London Gold Market. . .And it begs the question, why do the dealers need to borrow, and who are they borrowing from. And if the gold is being borrowed and sent to Swiss refineries, and then shipped onward to India (and China), then when will the gold lenders get their gold back."

Ronan Manley, Bullion Star, 9/7/2015

Please see R. Manley's How many Good Delivery gold bars are in all the London Vaults?

Editor's Note: The situation we are experiencing at the moment in the gold market is reminiscent of the period around 2002 just before the gold market broke to the upside. At the time, there were shortages in London and the Bank of England was forced into sales, in my view, to cover delivery problems being experienced by the bullion banks. As the BoE selling cleared the market, the price began to rise and developed into the first leg of gold's secular bull market – a long bull market I see as still in force today.

If you take the time to read Ronan Manly's lengthy article, you will see that he features the large tonnages being turned over at the refineries primarily in Switzerland. Some of that big number is probably from double counting – the result of 400-troy ounce London good delivery bars being converted to kilo bars for sale principally to China, but also to India. The important point to understand is that the double counting reflects how quickly the bars are being turned over - further reflection of the super-charged velocity at work. China and India are saying, "At these prices, we will take all you've got as quickly as you can get it to us." One should not overlook the effects of stymied production, particularly in South Africa, as further complicating the physical supply-demand picture and something with which the market will have to contend in the months ahead.

I would like to thank Koos Jansen at Bullion Star whose article, "It's virtually impossible to get physical gold in London", served as a source for much of the material republished above.

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