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The intention of The
Golden Chalkboard is to feature a focused selection of data
or rare commentary that I think will be useful to enhance your
insights into the gold market and the monetary system.
TownCrier (4/18/2000; 13:52:58MDT - Msg ID:28940)
Of the Markets and Gold...
My, what short memories we all have. Yesterday and Friday [April 14 and 17, 2000] there seemed to be a lot of angst expressed here that the price of gold was not reacting more strongly in light of last week's stock market selloff.
It seemed that these same people lost sight of the mechanism through which gold is currently priced. The highly visible "paper gold market" (such as COMEX gold futures) is the means for price-discovery (spot prices being derived in-turn from futures markets based on mathematical adjustments for the time-value of the two funds involved--those being both the currency and the metal.)
First of all, in the midst of a gut-wrenching stock market selloff such as we just saw, how many people instinctively say, "Golly, Francis, this seems like a good time to start playing the futures markets, too."??? That's right. None.
And even if Francis DID decide to play the futures at such a time--and thereby put pressure on the buy-side of gold contracts--how difficult to you really think it would be for those institutions with vested interest in price restraint (such as hedge funds mindful of their gold carry trade positions) to offer up whatever additional gold contracts necessary as cheap insurance to keep the price at bay?
Don't let yourself be deceived by price performance of paper gold (futures contracts). Physical gold demand by the world as tracked by WGC statistics continues unabated at record pace. You can be sure that those individuals who acquire and know the true value of gold metal continue to see the paper gold market as a sublime gift for as long as it endures.
I'm glad to see many posters coming back around to the proper evaluation in their comments today. Truly, past times and observation have revealed the paper gold traders to be sacrificing themselves and their available funds for the benefit of us physical gold advocates who eagerly accept the metal under the paper gold traders' terms of contract-based price discovery.
And we thank you.
TownCrier (4/18/2000; 17:23:06MDT - Msg ID:28960)
Gold Demand remains UP!
For those of you that might yet doubt that others in this wide world are capitalizing on physical gold acquisition at these paper-based prices as we mentioned in our previous post from The Tower, please doubt no longer. I refer you to these excerpts from the World Gold Council's Weekly Gold Market Commentary released today.
"Gold imports into Turkey surged to 52.5 tonnes during the first quarter of this year, up 219 per cent from 16.4 tonnes for the same period of 1999. Increasing investment demand in the local market, expectations of a good tourist season and good prospects for higher jewellery exports were cited as the main reasons behind this jump."
"In Taiwan, imports of gold bars and coins in March rose 19.44 per cent to 9.572 tonnes from 8.014 tonnes a year earlier. For the first quarter, gold imports totalled 23.921 tonnes, 33.25 per cent up from 17.951 tonnes for the same period in 1999."
And is this evidence that the prevailing paper-based gold markets are falling out of favor?
"The LBMA reported that London's net gold clearing statistics fell during March as trading ranges narrowed and volatility declined from February's levels. The number of ounces transferred fell 19% to a daily average of 24.2 million ounces (752.7 tonnes), which is the second lowest level on record."
What is more, the Swiss will likely forsake these conventional markets or UK-style open auctions, with the most likely gold allocation scenario to follow the Dutch model via the BIS.
"The Swiss National Bank (SNB) announced on Wednesday that, as expected, it will start its programme of gold sales in early May. These sales, which are governed by the Washington Agreement on Gold, are planned to reach a total of about 1,300 tonnes. The SNB said the method of sale would be announced nearer the time, but the Swiss sales are thought unlikely to involve auctions as is the case with the UK's current programme. The Finance Ministry said that the SNB would co-ordinate the sales closely with other European central banks."
These might all seem as tiny pebbles, but the keen eye may yet detect the impending avalanche. Build your financial house on a solid foundation.
TownCrier (4/18/2000; 18:35:51MDT - Msg ID:28969)
Imagine yourself living
in Turkey and trying to achieve meaningful savings
Although the steepness of the line will vary, someday this is what all currency graphs will look like versus gold. As was mentioned in an earlier post regarding 1923 Germany, do you think the goal of the average person was to accumulate ever more currency? [Historical QuickSketch of the Nightmare German Inflation (1923)]
Let this be your guide...
"Gold imports into Turkey surged to 52.5 tonnes during the first quarter of this year, up 219 percent from 16.4 tonnes for the same period of 1999."
Roll the clock forward...February 22, 2001
OK, that was then, (early 2000) and this is now -- nearly one year later. Those individual citizens finding themselves in the grips of a currency crisis have no need to fear. Even if they couldn't foresee this particular arrival of a precipitous devaluation period as mentioned in today's article (excerpted below), nevertheless their regular program of converting their paper wages and earnings into gold metal savings will have preserved their wealth into the new year.
But all in all, this is just a small currency with little effect on gold itself other than high local prices. Of course, you all realize what would happen to the value of gold "across the board" in the event of a failure of a more significant world reserve fiat currency...the ubiquitous dollar. Gold to the moon. Believe it.
Turkish lira likely to drop
30-40 pct - analysts
By Phil Smith
SINGAPORE, Feb 22, 2001 (Reuters) - The Turkish government's decision
to float the lira will likely result in a 30 to 40 percent depreciation
of the currency, analysts in Asia's main financial centres said.
"They have decided to float the currency and we believe there will be at least a 40 percent devaluation of the lira,'' Frank Gong, senior economist in the currency research and risk analysis group at Bank of America in Hong Kong said."
The least bearish call was for at least a 25 percent drop.
Before this week's turmoil really took hold the lira was bid around 685,000 per dollar.
At the end of a 12-hour emergency meeting Economy Minister Recep Onal told reporters as he left Prime Minister Bulent Ecevit's offices that the float would begin when Turkish markets opened at 0800 GMT on Thursday.
"The currency is going to be allowed to float in accordance with the economic circumstances that have arisen recently," a statement issued after the meeting said.
This abandons the crawling peg currency regime which was the centrepiece of an $11 billion IMF reform programme and follows months of economic turmoil topped off by an extremely public row between the prime minister and President Ahmet Necdet Sezer this week.
Over $7 billion was drained from central bank reserves as investors fled, leading the central bank to cut dollar supply and sending key lending rates over 4,000 percent on Wednesday.
But when the market resumes on Thursday the selling will not be coming from speculators, analysts here said.
``It's not speculators who are driving the lira at the moment, it's more foreign funds pulling money out or domestically people putting money into hard currency deposits,'' said John Tan, fixed income strategist at Standard Chartered in Singapore.
``It's very expensive to sell the lira even though rates will come down sharply.''
Analysts expected interest rates to plummet from their staggeringly high levels to below 100 percent as soon as the market opens on Thursday.
Dealers said the lira was not trading in Asia although customers had been calling and wanting to do business.
If analysts were willing to call the scale of the post float depreciation, dealers clearly were not.
Analysts generally saw the quick decision to float as a good move, even though it will cause much pain in the banking sector.
``Some banks will definitely go under, but it's still the best thing Turkey can do,'' said one analyst at a European bank in Singapore.
As with the Asia crisis, it will be the scale of overseas loans which will hit the banking sector as Turkey has external debt of around 50 to 60 percent of GDP.
"The direct implications are numerous but as was the case in the Asian crisis, the banking industry will be very susceptible given the very large foreign debt problem Turkey has," said Robert Rennie, currency strategist at Westpac Banking Corp in Sydney.
"Bankruptcies will clearly
follow as they did in Asia."
UPDATE: ...September 17, 2001
In the following chart we see that gold has more than doubled from the 166 million lira levels seen April 2000 in our chart at the top of this page.
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