John Rawlins share some long-term plays in the commodity sector....
Gold: A Once-in-a-Lifetime Buy
05/31/2013 9:00 am EST
A number of global catalysts are setting the stage for a spring back in gold prices, says Tom Luongo of LiveCharts.co.uk.
More than 300 tons of gold has been taken out of the SPDR Gold Trust ETF (GLD) this year.
But in the first quarter, the US exported three times the amount of gold that it produced, shipping nearly 130 tons overseas, primarily to Switzerland and Hong Kong. Only 100 tons of it went to official central bank reserves—with Russia, Turkey, and South Korea taking up most of it.
The Swiss central bank does not add to its official gold holdings, as that would legitimize gold among Western investors. The gold going to Switzerland is going to either private vaults or to the Bank for International Settlements (BIS), who is acting as a proxy for surreptitious central-bank buying.
But Swiss banks and vaults are being emptied faster than the reserves can be replaced. There are too many stories of Swiss banks making unreasonable claims as to why a customer cannot redeem his physical gold to ignore.
Dutch banking giant ABN Amro's default on their allocated customer accounts is literally the tip of the iceberg. And this is a story that few in Western journalism will touch—either out of complicity or incredulity. Either way, it's a part of the market that investors need to be aware of.
Last week, premiums for one-kilo and 100-gram bars hit record highs in Singapore, and imports to China surged in March to more than 220 tons imported through Hong Kong. And all of this was before the April 12-15 crash in the market, which was met with intense physical buying in the past month.
The precipitating event for this was the Cyprus bail-in, the brainchild of IMF Chief Christine Lagarde. She is being brought up on fraud charges that are more than ten years old, after having her apartment raided just a few days after the initial news broke.
She's facing hard time as punishment for letting the cat out of the bag on depositor impairment too soon, which sparked a run on physical gold behind the scenes that nearly crashed the London Bullion Marketing Association (LBMA).
We are still dealing with the fallout from that series of events, and the rush to physical gold is only accelerating. Once the price of gold had to be brought down to flush long contracts that could not be served, the market fed on itself. We are looking at exponential growth in demand for physical metal that is as predictable as a supply and demand chart from first-semester college economics.
Gold is officially in a bear market, in terms of price. The Fed was willing to accept the $1,550 to $1,800 range that had been in place between September 2011 and April. But once the rush for physical metal began, driving the price down only demoralizes those that were playing gold as a speculative game.
Those that understand the relationship that gold has with the financial system, and its role in keeping governments and central banks honest, know that this is a buying opportunity of near historic proportions—much like the crash to $700 created by the implosion of Lehman Bros.
The Fed will have to acknowledge this reality sooner rather than later, or risk losing the ability to manage the gold price through the fractional reserve system in place between GLD, COMEX, and the LBMA.
But if there are committed sovereign entities prepared to take that power away from the Fed and its bullion banks in NY and Europe, then there will be little to stop them at this point. All they have to do—and are doing—is demand delivery.
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