Indians buying up gold supplied by Fed? - MarketWatch
PETER BRIMELOW
Indians buying up gold?
Commentary: Gold bugs think Fed, other central banks making it available
By Peter Brimelow, MarketWatch
NEW YORK (MarketWatch) -- The gold bugs are coming out of their holes
again.
When I last wrote on gold, the metal was challenging $1,000, a level which
was passed that day. See March 17
column
After that, gold's stumbled, down $70 at one point, although up $10.60
over this past week.
But two crucial factors have swung encouragingly, rallying the gold bugs.
The first: the price of gold in India, by far the world's largest im****ter
of the metal. India is a massive buyer of bullion
for jewelry and cares little for the rest of the world's concerns. If the
Indians want to buy, they will.
India has a fairly high im****t duty on gold. If you subtract the duty from
the world price, you find whether the
domestic price makes im****ting profitable. It has been moved decisively
into profitable territory for legal im****ts this
week. This has not been the case for some time.
For reasons that mystify me, the only regular source of this Indian data
is Bill Murphy's Website Le Metropole Cafe.
Yet this is the key calculation for verifying Indian demand. See Website
Over the weekend, Le Metropole posted this: "Indian ex-duty premiums:
(Friday: a.m.$1.85, p.m. $2.55, with world
gold at $943.75 and $944.55. Ample for legal im****ts."]
Anyone familiar with the physical trade must find it hard to envisage much
further price decline.
The second encouraging gold bugs: The lease rate for gold. This is the
cost of borrowing gold. Thirty years ago, this
was a detail, but with the huge expansion of lending to gold mining
companies in the 1980s it became a big deal. In
particular it was an im****tant part of the argument of outfits like Gold
Anti-Trust Association GATA which argued that
secretive activity in the gold market by central banks was crucial to
understanding what was happening with gold.
In the past few days a strange thing has happened. Australia's Privateer
says, "the shorter term (one and two-month)
rates have actually gone into negative territory this week."
In other words, gold is being supplied to the market by the central banks.
Privateer goes on: "We do not recall a
previous instance of this, and there certainly has not been one since the
cold bull market began in 2001-02 ...
"We have not -- until now -- seen a situation in which the central banks
are actually paying the bullion banks, hedge
funds, gold miners et al to borrow the stuff. And please don't forget
that, in this context, leasing gold is actually
"shorting" gold. Gold is not "leased" to be hoarded, it is "leased" to be
sold for something that pays a far higher rate
of interest ... the practice of 'leasing gold -- and silver' by the
central banks has been one of their best means of
suppressing the prices of these precious metals for a long time."
Interestingly The Privateer's wonderful $US 5x3 Point and figure chart
withstood this week's slump. See chart
Goldbug conclusion: Central banks, led surreptitiously by the Fed, are
supplying physical gold to the market. And
wise heads like the Indians are buying it.
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