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18 SEP 18

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The current situation in the gold markets is still offering very few concrete underlying factors to give a clear or even sophisticated opinion on its outlook. As I said in the heading of this article, I like to be confident and yes, there are some good signs but it is too early to be outright positive. Any prospective comment would be more based on the thought that the current price level of gold has bottomed out but that is simply not good enough. More convincing developments would be necessary to come up with a solid enough prediction. For now, I will restrict myself to give you some observations that I have been making in the recent few months.

Above all, what is happening in Wall Street has been surprising to me the most. The apparently never ending optimism of the ever going higher stockmarkets seems to reflect the positive attitude of the public or is it the fighting for survival against knowing better of the investment industry itself? In this respect is cannot be coincidental that we are frequently reminded of what happened 10 years ago: the collapse and demise of the renowned investment bank Lehman Brothers. Their questionable mortgages led to a real estate crisis and subsequently to a worldwide financial crisis. On September 15, 2008 Lehman Brothers was declared bankrupt, leaving $631 billion in debts and 25,000 employees jobless worldwide. To see what really happened, there are a number of documentary films on You Tube, one of which is “The Fall Of Lehman Brothers”, made by French journalist Jennifer Deschamps in cooperation with Sylvain Pak and the Indian-American journalist Vikas Bajaj.

This seems to be an excellent moment to watch this documentary and keep these events in mind, they are incredible, in particular because of the ignorance-to-the-very-last-moment by Lehman’s management and insiders. Please note that I am not predicting the same things will be happening again but it is good to remember that the future has repeated itself several times before in the past……

Another remarkable development I noticed is the silence that developed over the recent year or so, the silence from almost every organization that could have reminded us of gold being the last frontier of physical safety and security, the last store of real value in our monetary system while the price has been dwindling as low as $1,160 in mid-August. There have been no comments or notable actions from the U.S. Federal Reserve, any of the Western World Central Banks, government spokesmen, let alone from any of the world’s political leaders but that doesn’t happen often anyway. The only news on gold came from the few countries that have openly stated that the possession of gold in their national Central Banks is a highly welcome and popular asset, being China, Russia, India and Kazakhstan.

The National Bank of Kazakhstan announced that they added 160,000 ounces (4.977 tons) of gold to reserves in July, bringing total gold reserves to top 326.5 tons, thereby surpassing Saudi Arabia’s 322.9 tons. Gold now constitutes 41.4% of Kazakhstan’s overall official reserve assets. Gold Reserves in Russia increased to 1909.80 Tonnes in the second quarter of 2018 from 1857.70 Tonnes in the first quarter of 2018. The current Gold Reserves in Russia represents an all time high since it averaged 778.35 Tonnes from 2000 until 2018. China has officially kept its gold holdings unchanged at 59.24 million ounces since October 2016, or 1,843 metric tons, valuing them at $74.1 billion at end-June. One reason that China may not actually be buying more gold for reserves could be that public purchases of bars and jewelry mean one measure of national holdings is increasing substantially and these assets could be accessed by the state if needed. Secondly, as the world’s largest miner of gold, the country can always buy domestic production for yuan if it wished. Gold Reserves in India increased to 560.30 Tonnes in the second quarter of 2018 from 558.10 Tonnes in the first quarter of 2018. Gold Reserves in India averaged 452.38 Tonnes from 2000 until 2018, reaching an all time high of 560.30 Tonnes in the second quarter of 2018 and a record low of 357.75 Tonnes in the second quarter of 2000.

In light of the above developments, it remains a big and good question where an actual and widely spread demand for gold has to come from. The warning from well-known die-hard gold supporters, I still consider myself one of them (!), that gold is relatively low both in historical perspective as in fundamental value, has lost a lot of its power, not in the least because of the weakening but still imminent of popularity of the bitcoin and some other crypto currencies and aside from that, because of the lack of really stimulating factors for gold. A very basic statement would be that gold should be and remain to be a strategic part of every investment portfolio.


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