All major currencies have fallen against gold and silver again today with gold reaching new record nominal highs in most fiat currencies including U.S. dollars. Gold reached a new record of $1,894.80/oz – just shy of $1,900/oz.
Cross Currency Table
The London AM fix was a fourth consecutive record nominal high in US dollars. Gold’s London AM fix this morning was USD 1,877.75, EUR 1303.17, GBP 1139.55 per ounce (from Friday’s USD 1,862, EUR 1299.28, GBP 1126.91 per ounce).
Silver is in all major currencies and has risen another 1.4% in dollars after last week’s 8% gain.
Gold’s 6.2% rise last week and silver’s 8.2% rise was barely reported in the press and media in Europe over the weekend – with all the focus continuing to be on equities and to a lesser extent bonds. The usual suspects in stockbrokerages and banks warned about gold being a bubble again.
Silver was not reported at all and remains almost completely taboo in the non specialist financial press. Besides the very occasional article warning that it is a bubble.
According to Bloomberg, the central bank of Venezuela has sent a statement by e-mail requesting its 99 tons of gold holdings from the Bank of England, citing the institution’s president, Nelson Merentes.
GOLD SPOT $/OZ
“We’ve contacted the Bank of England and the corresponding protocols have been initiated to complete this operation as soon as possible,” Merentes said, according to the statement. “Once that’s done, the shipments will begin by sea.”
Chavez ordered the central bank on Aug. 17th to repatriate $11 billion of gold reserves held in developed nations’ institutions. Chavez fears ‘hostile countries’ may seize the national patrimony.
Venezuela holds 211 tons of its 365 tons of gold reserves in U.S., European, Canadian and Swiss Banks.
40 shipments will be needed to carry the 17,000 400 ounce bars by sea. Piracy must be a real concern given the value of the bullion and Venezuala should ensure that the shipment is well protected.
While physical demand remains robust, sentiment in the trading pits remains muted. An indication that speculative sentiment remains lukewarm was seen in the U.S. Commodity Futures Trading Commission data released Friday evening.
Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Aug. 16, according to the CFTC data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 200,086 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 3,487 contracts, or 2 per cent, from a week
The opposite was the case in the silver market where sentiment appears to be heating up somewhat with the risk of another short squeeze developing.
Hedge-fund managers and other large speculators increased their net-long position in New York silver futures in the week ended Aug. 16, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 21,928 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 3,540 contracts, or 19 per cent, from a week earlier.
The dumb money continues to warn that gold and silver are bubbles.
Their simplistic bubble thesis is based almost exclusively on the nominal US dollar price and recent price movements and on the assumption that (to paraphrase) ‘gold has gone up in price a lot – therefore it is a bubble’.
There is a continuing failure to look at the important supply and demand fundamentals of the gold and silver markets which leads to unsound reasoning and irrational conclusions. There is also a failure to adjust for inflation.
There is little knowledge of the very small size of the physical bullion markets vis-à-vis the stock, bond, currency and other markets.
There is also very little knowledge of financial, economic and monetary history and a continuing ignorance regarding ‘investment 101’ which is diversification.
Being prudent and having an allocation of 10% to gold will protect no matter what economic and monetary scenario develops in the coming months. If one is not leveraged and is prudently diversified and owns gold bullion (coins and bars in the safest way possible), it does not matter if gold is a bubble or not as you own a range of other quality assets.
From a purely investment point of view – an allocation of 5% to 10% makes sense.
From a financial insurance or store of wealth point of view – having a higher proportion of your overall net worth makes sense.
Especially given the risks posed to the dollar, euro, pound and fiat currencies and to deposits “guaranteed” by insolvent states.
Not putting 10% of your wealth in gold is extraordinarily imprudent today and a recipe for further financial destruction.