Dear Reader,

It’s been an interesting week in regard to the Gold Price.  This wasn’t normal price behaviour.  If one just looked at the overall price move the weekly change is just 0.09% from where the price per ounce stood a week ago today.  But, between those two (almost) identical peaks is the gargantuan trough of a weekly high of £1045.40 to a weekly low of £913.92.

Last Tuesday at 10:00 am the price stood at £1026.62 an ounce but by 6:30 pm the same day it had plummeted to £997.85.  It hovered a little but stayed around the £990 mark until Thursday evening.  Then, very strangely, by midnight on Friday it was back up, in an almost vertical ascent to £1015 per ounce.  

If you’d been waiting for a moment to restock, those 36 hours were a golden opportunity.  To put into perspective, that was the lowest the price has dipped in 4 months.

As of right now, the price is back up to £1024.48, almost identical to how things began this time and day last week.  Have you ever paddled in the shallows of a clear summer river watching the minute whirlpools form for brief minutes by the bank? They disappear into the flow of fresh water and it is as if they were never there. Much like this price dive and recovery; the suck of some unseen force causing a whirlpool of a near vertical fall in price, only to disappear to leave the surface almost unchanged – to the penny -as it was before.

So, this begs the question…. what happened?

None of the normal geo-political markers shifted. There was no announcement of a large rise in interest rates, there was no peace accord to announce that all is now well between Russia and the U.S. in Syria, for example.  Because of this, these sharp, sudden and completely “artificial” moves in price are hard to predict, so it is wise to be as positioned as possible cash-wise to jump in these “split-second” buying opportunities.

The mainstream media didn’t raise an eyebrow, of course.  But people within the precious metals market really DID notice, as I’m sure many of our readers also did too.  “It’s pretty clear something ‘fishy’ was going on, as Andrew Maguire, a well-known precious metals trader immediately confirmed the total volume of the crash was very suspicious as in excess of 1,000 tonnes of paper contracts were dumped on the market in a matter of hours. Yes, that’s approximately 1/3rd of the entire world’s annual gold production from mining activities, so yes, it’s obvious this isn’t normal  trading behaviour.”

I haven’t been able to find a discussion or reason for this behaviour. But Zerohedge put together an extremely insightful piece on this exceptional move within the Gold market: “What makes the drop even more interesting is that it happened on a Tuesday, right after the bank holiday in Germany (the financial markets were closed in Germany on Monday). Could this indicate certain market parties were expecting to see a solution for troubled Deutsche Bank during the long weekend? Nothing materialized even though Deutsche Bank will very likely need to raise more capital, and rumors about a semi-bailout by other German large companies started to circulate later in the week. So whacking down gold might indeed have been some sort of pre-lude and part of the global idea of a monetary reset or a bailout of Deutsche Bank. Because let’s be fair, it’s just ridiculous to see 1,000 tonnes being dumped on the open market on a day when the Chinese markets (and the Shanghai Gold Exchange) were closed…

And indeed, our hunch was confirmed when Qatar announced on Friday it was considering taking a massive equity stake in Deutsche Bank, so this adds credibility as to why the gold price was pushed down on Tuesday, rather than on Monday.

But then the main question obviously remains, who sold? Because if one thing is clear, the futures market crash was NOT caused by sellers of physical gold. We pulled up the data from the SPDR Gold Trust (GLD), and between Monday and Thursday’s closing bell, the total amount of gold owned by the Gold Trust fell by just 10,000 ounces of gold. That’s 0.3 tonnes of gold, and just 0.03% of what has been sold on Tuesday in the paper markets.” (Zerohedge, 9th October 2016)

This last point is really worth a highlight.  As many of our regular readers know, the daily  Gold and Silver price are “fixed” in regard to the number of paper certificates sold, not the real physical metal ounces sold.  If only 0.03% of physical was actually sold compared to the amount of paper changing hands that day, this once again highlights the fact that investors in physical Gold and Silver are holding onto their bars and coins.  

Because, how can “1,000 tonnes of paper contracts” or “approximately 1/3rd of the entire world’s annual gold production from mining activities” be dumped onto the markets in a matter of hours?! As further metals commentators muse;

“Once again, if this doesn’t smell fishy, we have no idea what would!  We are pretty sure the Chinese and the Russians will be really grateful for this opportunity to add more physical gold at a multi-month low price. Let’s forget about the Chinese for a minute and zoom in on the Russian stance. As you can see on the data of the International Monetary Fund (IMF), Russia has continued to purchase more physical gold to its balance sheet every single month this year!

“Not only is this remarkable considering the country’s public finances are in a bad shape due to the oil price crisis, it’s really interesting to see the decline in the price of the yellow metal is going hand in hand with a sharp increase of the oil price. Whereas the gold/oil ratio was almost 40 in January (which means you needed 40 barrels of oil to purchase on ounce of gold), this has now decreased to approximately 25. This means that an oil-dependent country willing to increase its precious metals position by spending the hard dollars it earns from its oil sales now has to sell 40% less oil to afford the same amount of gold. Or, differently: the gold purchasing power of a country like Russia has now increased tremendously, and we wouldn’t be surprised at all if Russia will add a million ounces to its balance sheet in September and October combined. Long story short, nobody knows who has been selling, but you can be pretty sure our Chinese and Russian friends will take advantage of this opportunity!” (Secular Investor, 9th October 2016)

A former Navy Officer wrote in the Business Insider this week of his thoughts on Russia; “My point is that Russia’s most potent weapon may not be its nuclear warheads. The fastest-evolving “weapon” in Russia’s geopolitical arsenal is that nation’s hoard of gold. Just as Russia has built up its military arsenal in recent years, Russia has also built up its gold reserves. Most of the gold mined in Russia stays in Russia. Russia’s government is converting state rubles into state gold assets. In July of this year, the central bank of Russia added 200,000 ounces of gold to its reserves.

The one-month uptick in Russian gold reserves — 200,000 ounces — is approximately equal to the entire annual output of Barrick Gold’s Turquoise Ridge gold mine in Nevada. At that same rate — 200,000 ounces per month — in a mere five months, Russia would add to state gold reserves the equivalent of the entire annual output of Barrick’s massive Goldstrike mine in Nevada. Right now — or perhaps I should say, “for now” — Russian gold reserves are less than those of several other major nations. It currently ranks seventh in the world. But there’s a distinct effort by Russian political and monetary authorities to build up the country’s overall gold asset base. There’s nothing accidental about it. Gold is part of Russia’s national plan.”

So, as the British political leaders begin to express that quantitative easing is not the vulnerary monetary application once thought, it is jarring to see such moves in the Gold price, in as much as it reminds us to stay awake and in a position to invest on the dips, as appropriate to our overall financial research and strengths.  Sadly, I believe most awake readers and commentators were aware of Q.E.’s weakness and affects ab initio and I find it hard to believe well educated policy makers didn’t also.

Meanwhile, in the mainstream media, if the Gold price move was noted, it was attributed in the main to an expectation of a U.S. interest rate hike.  This is somewhat hard to imagine just before a Presidential Election but none-the-less, let’s explore what the mainstream commentators believe the Gold price is facing:

“This theme was front-and-center last week as FOMC member Loretta Mester said that the case for a rate hike in November would be strong. This caught markets by surprise as the November FOMC meeting is just a week ahead of US elections, and this would very much be a change-of-pace from the talk-heavy, act-light historical patterns of the Fed over the past nine years. This helped to create a quick rush of demand in the US Dollar, and this burst of strength in the Greenback helped to initiate a deluge in Gold prices.” (Daily FX, 10th October 2016)

And, let’s not forget our sister to Gold, Silver. She’s had an interesting week too. I like calm analysis and I found just that yesterday from Peter Krauth of Money Morning. He holds the following view regarding Silver:

“Last week was another challenge for the price of silver per ounceSilver prices dropped 5.8% on Tuesday alone and are down about 17% since peaking in early August. What triggered this sell-off? Well, it’s mostly thanks to Fed officials saying they think the case for a rate hike has improved. Plus, a report surfaced on Tuesday about ECB officials indicating it could be time to start tapering the central bank’s asset purchase program, ahead of schedule. The ECB has been buying 80 billion euros in bonds monthly in an effort to stimulate through QE. Thirdly, the price of silver per ounce tends to closely follow gold. Gold is off about 8% from its August highs.

Silver prices have been dragged down to a three-month low, apparently suffering this past week their largest one- and two-day decline since January 2015. There’s no doubt the metal’s been inflicted with considerable sentiment and technical price damage. Three weeks ago I said: “…it does have downward momentum right now. I think the upcoming FOMC meeting could be significant. If there’s follow through on weakness, we could see it test the $17-$18 range.”

That’s where we are now…. Silver prices this week dropped steadily, touching the 200-day moving average. This price may act as support. But if silver breaks below that level, the next likely target would be $16.

Nonetheless, macroeconomic and geopolitical challenges and uncertainties remain supportive. Once we get this correction behind us, silver should begin to march higher toward $22 this year.” (Money Morning, 10th October 2016)

So, where does this leave us?  Bleyer hold the view that Physical Gold and Silver are best held over a long period of time in funds not necessarily needed until one sees the price is advantageous to sell.  With this in mind, I read a thought-provoking article this morning in the Money Section of The Telegraph; it explored the idea of grandparents giving financially while they are alive to their grandchildren. At first glance, why? But the figures are worth careful consideration within families that can provide for more than themselves:

“Today’s high life expectancy, coupled with the relatively young age at which people had children in the 1940s and 1950s, mean that someone in their eighties or nineties might well have offspring in their sixties and seventies who are already retired – and wealthy. These children, born post-war, were lucky to be better off than any generation before them. They are also likely to be richer than those who came of age in this century (so-called millennials) will ever be. That’s young people like me. [that’s the Telegraph’s author speaking – I’m in my 40’s, the middle generation, so have little leaning either way in this issue.]  The article continues; “According to figures from Saga, those in their sixties have average household wealth of £83,105. They’re the wealthiest of any group over the age of 50. They are financially prudent. They can see the difficulties their grandchildren are in, and worry about how they are going to get by with no property wealth, tiny pensions, and a high and growing cost of living. By giving their money away they can both enjoy the benefit of their gift while alive, and cut down on the inheritance tax their children will have to pay [if given seven years before].  (The Telegraph, 10th October 2016)

It’s a stimulating argument. But regardless of whether one’s wealth is passed onto directly to one’s children and then grandchildren, Bleyer offer many discreet ways to give to family members. Indeed, many of our clients become clients themselves precisely through a family connection; a close family member or friend already being one of our customers.  Trust, word of mouth and bespoke customer care are invaluable in family wealth affairs.

Gold coin has long been not only a traditional but beautiful way to pass on some wealth to a family adult child or grandchild.  I have just begun to think about family plans over the Christmas season, mostly from a logistical and travel point of view!  But it does also turn my attention to gifts for others.  Interestingly, I once gave a small Gold bar for a wedding anniversary gift which was a completely unique with which they were delighted. Silver bars and coins, of course, lend themselves extremely well to this line of giving, as they are cheaper plus match the metal of the more usual 25th Wedding Anniversary.  Bleyer have also enjoyed sourcing Gold Sovereign coins from the birth years of each of grandchild for one of our long-standing clients.

Call now to discuss your owning and giving of real Physical Gold and Silver from one of the Bleyer team on 01769 618618 or email sales@bleyer.co.uk to discuss a convenient time for Bleyer to call you.