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RECORD GOLD DEMAND ??
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"The short position has been easy to manufacture and keep puffing up, but cannot be deflate without violence. Three conditions that could turn a "tinderbox" market into a raging gold inferno. One is sufficient for ignition, three would cause a wildfire that turns 1980 into an amateur stage production." |
NEW YORK----Feb. 14, 2001--Gold demand in the world's leading gold-consuming countries was 11% higher in the fourth quarter of 2000 than a year earlier, according to figures published by the World Gold Council today.
At 894 tonnes, this set a new quarterly record for the world's 27 major markets, topping the previous record, in Q3'99, by 2%. The strong growth in Q4 offset a weaker performance in the first three quarters so that demand for the year as a whole, at 3,281 tonnes, was essentially unchanged from 1999.
Jewellery consumption for Q4 reached 793 tonnes, 12% higher than a year earlier and 5% higher than the previous record in Q3'99. Annual consumption of jewellery was also a record at 2,902 tonnes, 4% higher than the previous record in 1999.
In contrast to jewellery, investment demand throughout 2000 was subdued, falling 21% from the 1999 level. In 1999 investment demand was exceptionally high, particularly in the US, due to fears of widespread Y2K disruption. When the disruption failed to materialize demand fell sharply in 2000, a fall exacerbated by some of the gold acquired being sold back to the market. However, by Q4 there were signs that investment was shaking off the effects of the fallout, with demand higher, by 4%, than a year earlier for the first time in the year.
Demand reached new records in several countries. In India, the world's largest market, demand edged above the previous record in 1999, despite an abnormally low number of auspicious days in the Hindu calendar for weddings and a patchy monsoon hitting rural incomes in some areas. In Turkey demand rose a massive 49% over 1999 enabling the country to regain its place among the world's top five consumers. Records were also set in the Gulf States, Mexico and Vietnam. Also of note is the 10th successive annual record for gold jewellery consumption in the United States.
Haruko Fukuda, Chief Executive Officer, World Gold Council, commented: "I am encouraged by the all-time record achieved in the fourth quarter. Despite the effect of Y2K fallout on investment demand, which depressed the figures for 2000 as a whole, the trend in consumption has been strongly upwards in the last few months. We are determined to build on this performance and I look forward to seeing good progress in 2001."
SHORT POSITION
Regular readers of this Precious Metals Update would be well aware of the physical shorts in both the silver and
gold market. When commenting on the release of the World Gold Council numbers, Tim Wood in New York made these
comments on the alarming and growing short position in the Gold Market. His comments highlight the attention of
this dangerious issue is just starting to recieve amoungst parts of the financial press.
"What is not getting much serious attention - outside of conspiracy circles - is the short position, said to exceed 10,000 tonnes (four years of production or one third of all official book holdings) that is irretrievable. The short position has built up as a result of central bank gold loans where the metal remains on the books but which has in reality been consumed and is not readily available to be returned. This has created an effective "double-claim" on every ounce lent. Where speculative derivatives are layered on top of this paper gold, the double claim can multiply logarithmically. This is the heart of the excess supply problem.
The short position has been easy to manufacture and keep puffing up, but cannot be deflate without violence.
The central banks appear, on paper, to be in a position to cover the short position in an emergency, but the fact is a large portion of the holdings are entirely notional and paper committments written over long exited metal probably exceeds liquid supplies many, many times over. Milling Stanley agrees that current gold reporting is a Sword of Damocles. "We would like to see [official] gold holdings qualitatively separated." A recent WGC commissioned study by Jessica Cross concluded that the central banks have lent at least 5,000 tonnes which is still reported as "on hand" when it should be accounted for as gold receivables.
In an outstanding commentary on the subject by Douglas Pollitt, of his namesake Toronto broking firm, he says: "An ever-larger supply of lent gold is needed to fill the widening supply-demand gap and to ensure that the market remains depressed and investors remain disinclined to call in existing gold loans."
He highlights three conditions that could turn a "tinderbox" market into a raging gold inferno - a drought of official sector lending; faster reductions of new supply; and US dollar instability. One is sufficient for ignition, three would cause a wildfire that turns 1980 into an amateur stage production.
There's no middle ground in the debate on gold, but Pollitt leaves the sage advice for last. "Precious metal companies are...valued like options on the gold price, like portfolio insurance. Be positioned or be left out."
Milling Stanley says it another, more eloquent way: "When it's midnight, do you know where your gold is?"
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