If you are awaking this morning and dialling the price of gold and silver, you might be tempted to think that the rejection of the Swiss Referendum was no big deal. As I write this, gold is up $1 and silver is up 14 cents. It was all baked in, right? Well, not really…
Overnight there was a huge selloff that got downright ugly. Gold was down $30 and silver was absolutely destroyed – at one point trading down more than $1.25!
My twitter feed was filled with all sorts of cocky remarks from the “commodities are a terrible investment – buy stocks” crowd. The disgust for commodities, and the accompanying arrogance for equities, reached quite a fevered pitch last night. You would think that gold has no better use than toilet paper according to these investors.
As I have stated many times in the past, I am no gold bug, but I refuse to believe that the world’s Central Banks can continually expand their balance sheets and have all that liquidity benignly levitate only financial assets. So far, I am not correct, and I will be the first one to admit that. Central Banks do indeed seem to be much more able to control which assets levitate more than I would have ever imagined. But the system is becoming more and more unstable. There is a storm brewing on the horizon.
Although the Swiss rejected this referendum, on Friday the Dutch announced that they had secretly repatriated 122 tonnes of gold from the US back to the Netherlands. It is interesting that while most pundits are busy crapping all over gold, some Central Banks are quietly asking for their gold to be sent back home.
The Germans have already set in motion a program of bringing a portion of their gold back home. But recently the Germans have also floated the idea that any balance sheet expansion would include gold purchases along with other financial asset purchases.
And the leader of the French right wing National Party, who is currently polling more favourably than the current President, wrote a letter to the Central Bank of France that demanded the French gold be repatriated back to France. Here is some translated highlights according to Forbes:
[The monetary institution that you lead has historically served as the reserve central bank for France’s monetary and gold reserves. In our strategic and sovereign vision, these do not belong to the state, nor the Bank of France, but to the French people, which serve as the ultimate guarantee of public debt and our money],” she wrote.
Not only does Le Pen want to see the gold back in France but she also recommended that the central bank take advantage of the recent price drop and buy more gold, boosting reserves by another 20%. She also recommends that the central bank never sell its gold reserves.</p> Although I understand why my twitter feed of traders is all beared on gold, it has after all been going down for the past three years pretty consistently, it is quite a different story out of the world’s Central Banks. They claim that gold doesn’t matter, yet they continue to hold it. They say that the system is stable and they all trust one another, yet they are asking for their gold to be sent home.
The last gold bull market was the result of speculative flows from hedge funds. This next bull market is going to be result of Central Bank buying. Remember when during the 2008 credit crisis the private banks did not trust one another? Well, that same thing is going to happen during the next crisis, but instead of it being the private banks who do not trust one another, it will be the Central Banks. And the asset that is going to be the ultimate store of trust will be physical gold.
All the hedge funds and other investors hate gold. So be it. Let them hate it. But the next round of buyers are quietly asking for their gold to be delivered back home. Remember to watch what they do, not what they say. And what they are doing is unambiguously bullish for gold…