The Bundesbank repatriates its gold reserves

Germany, the holder of the world’s second largest gold reserve, last week decided to repatriate some of its 3,400 tons of gold not already in its vaults to reach 50% in 2020.

What to make about this?

The FT continues its anti-gold stance along the lines of the barbaric relic and the WSJ cites the pressure of populism.

One may also point at a sensible move to make sure that real assets are held at home. If this is true, it tells a lot about the confidence of the Bundesbank with some of its counterparts…A remake, at the central banks level, of banks distrusting each other during the financial meltdown which led to a freeze of the interbank market?

The most interesting point is that the Banque de France will end up with no German gold and The FED will see its holding decreasing by 30%, for a total consideration of 674 tons or USD 36 billion at current market price, whilst the BoE will stay at the same level. This could be a barometer of Germany’s assessment of its counterparties quality.

Source:

Deutsche Bundesbank: Deutsche Bundesbank’s new storage plan for Germany’s gold reserves

http://www.bundesbank.de/Redaktion/EN/Pressemitteilungen/BBK/2013/2013_01_16_storage_plan_gold_reserve.html

To my Greek readers: The sale of gold and silver coins by the Central Bank is a rip-off

On April 30 the Greek Ministry of Finance issued a press release announcing the sale of gold and silver collector coins. It is a rip-off, so keep clear!

The calculation is as follows:

1. Gold coins

17 g / coin @ 1,615 $/oz (1 troy oz= 31.1g) = 702.58 EUR / coin (1.2565 USD / 1 EUR)

Selling price: EUR 2,100 i.e. 3 X the value of gold!!!

2. Silver coins

24 g / coin @ 29 $/oz (1 troy oz= 31.1g) = 17.81 EUR / coin (1.2565 USD / 1 EUR)

Selling price: EUR 90 i.e. 5 X the value of silver!!!!!

Please also note that the title of precious metal is on the low end at 916/1000 of gold and 925/1000 of silver.

You are better buying alternative coins quoted on the market or gold bars. For example, for EUR 2,100 you could buy a 1 oz Canadian Mapple Leaf with 999.9 / 1000 purity and get 14.1 g more gold, a better purity and still have EUR 700 to go shopping! (and I included a fat 5% broker commission).

This deal is much worse than the issue of gold and silver coins by the French Mint in April 2011…et do not tell me that that the “collector” value makes the difference!

Source:

Ministry of Finance: Press release

http://www.minfin.gr/content-api/f/binaryChannel/minfin/datastore/f5/a3/e8/f5a3e8c5477c1dfd193356144901e5120f657bec/application/pdf/ANNOUNCEMENT+75+YEARS+BoG.pdf

Markets & Beyond: The French mint issues a limited series of gold and silver coins: a rip-off!

http://marketsandbeyond.blogspot.com/2011/04/french-mint-issues-limited-series-of.html

The French mint issues a limited series of gold and silver coins: a rip-off!

The French mint (“Monnaie de Paris”) is issuing 10,000 gold EUR 1,000 face value (weight 20 g or 0.71 oz @ 999.99/1000 title) and 50,000 silver EUR 100 face value (weight 50 g or 1.76 oz @ 900/1000 title). They will be delivered from mid-June to end July and a 30% deposit is required to reserve them.

Do not rush!

First, Gold coins were already sold out within 48 hours with people queuing in the street at “ Monnaie de Paris” Thursday and Friday. Tuesday, I was told by officials there that silver coins were also sold out.

Second, it is a rip off!!

1) Investors get a 1:3 leverage for +/- 3 months having to deposit only 30% of the face value until delivery

2) The interesting feature is that the coins have legal tender and it is therefore possible to exchange them at face value at any bank in France (and probably throughout the eurozone but I could not find confirmation of this). This means that if the metal value of coins was to fall below the face value of coins, investors would still get the face value. This puts a floor on gold and silver prices: it is the same as having a free undated long put on gold and silver prices.

Let’s take an example.

If gold prices continue to go up, then the value of coin will go up accordingly. If gold prices were to fall to EUR 500/oz giving a gold value for gold coins of EUR 323, your coin would still be worth EUR 1,000.

BUT

There is more than one catch however: as usual no free lunch!

1) According to the data indicated on “Monnaie de Paris” web site, the oz used is an ounce and not a troy ounce; this means 28.35 g/oz is used instead of the 31.104 g/oz for the quotation of precious metals, a ratio of 0.912 (see calculation below).

2) At the time of writing, the value of precious metal for each coin is well below the face value:

Gold @ $1,460/oz x 0.912 x 1.44 EUR/USD x 0,71 oz= EUR 656.51, over 50% premium!

Silver @ $40.6/oz x 0.912 x 1.44 EUR/USD x 1.76 oz = EUR 45.26, over 120% premium!!!

I doubt the collectable value (if any) warrants such premia. As usual the poor guy in the street has been ripped off.

And paying a put option at such premia looks very rich to me.

3) If the price of precious metals were collapsing, I also doubt that French authorities would not renege on the possibility to exchange the coins at their face value.

One last thing, the price includes 19.6% VAT; if you are a non-EU resident you are normally entitled to the reimbursement of VAT (and you pay whatever tax, if any, in your country of residence); here, forget it: you pay the full price.

Why on earth any rational investor would buy these coins when much cheaper alternatives are available; the history of love French have with gold is so long that they were trapped once again by the Ministry of Finance... (this does not mean that there will not be a mini-bubble in the short term – Oops! A bubble created by a Ministry of Finance, anything new?).

Source:

Monnaie de Paris: La Boutique

http://boutique.monnaiedeparis.fr/is-bin/INTERSHOP.enfinity/WFS/Monnaie-Front-Site/fr_FR/-/EUR/ViewStandardCatalog-Browse?CatalogCategoryID=6PqsE6zmTcYAAAEuIykkXE22

Chart of the Day: Family Home Price/Gold

An interesting chart showing US median family home price in gold: today it takes 120ounces of gold to buy the median single-family home vs. 601 ounces in 2001, 80% down from the peak and near it previous trough in 1980. Markets tend to overshoot however and I expect this ratio to significantly decrease. We probably are in for a 35-40 years cycle before it rebounds.

Source:

Chart of the Day: Median Single-Family Home Price / Gold

http://www.chartoftheday.com/20110311.htm?T

Gold, gold and gold!

This afternoon, gold futures reached an all-time high at 1,085.30/oz (COMEX Dec contract), following the purchase of 200 tonnes of gold by India from the IMF for about $6.7 billion. Well done India!

The last gold hangover is now withdrawn: gold sales by the IMF will easily be absorbed by emerging economies. I also doubt China will stay on the sidelines watching India catching all this gold against worthless paper without getting their piece of the cake. Whatch gold and take any fallback as a buy opportunity. Gold is on its way to it record high, at 2009 prices US CPI deflated, of $1,600/oz.

For the US and Europe, they have no money left and over all would not like to send a signal of lack of confidence in fiat currencies (and the USD in particular) and expose to the public the wrong policy followed by many European central banks: selling the jeweleries for hot air. Don't forget that Mr. Brown, the current UK Prime Minister and then Chancellor of the Exchequer, initiated this irresponsible policy in the UK during the second half of the nineties when gold prices were at the lowest (in the $250-300/oz range) at the same time Tony Blair was dramatically increasing the number of civil servants and digging deep in the fantastic work undertaken under the tenure of Margaret Thatcher and to a lesser extent John Major...

What best than the shift in gold possession is exemplifying the shift of power from the West to the developing world?! It also says a lot on the lack of understanding of challenges faced and short sighting by policy makers in the West. Worrying.


Source:

Reuters
US gold hits record high $1,081.70/oz on IMF sale
http://www.reuters.com/article/usDollarRpt/idUSN0350038020091103

Bloomberg
Gold Climbs to Record as India’s Central Bank Buys From IMF
http://www.bloomberg.com/apps/news?pid=20601090&sid=aUm.roGyeOR0

US financial rescue sheer size

An interesting article published yesterday on Bloomberg detailing the total size of the US rescue package so far: $12.8 trillion with $4.2 trillion already spent/committed! And counting... (see details at the end of this article)

No need to be a monetarist to see where the long term value of the dollar is going: south against many other fiat currencies in Asia and commodity based countries, not talking about precious metals.

Despite central banks and governments efforts to demonetize gold, reality is catching up quickly. The short term risk (and not long lasting beyond the announcement) is for Thursday G20 meeting to announce that the IMF will sell gold directly or indirectly. So far the US has been reluctant, but for a few and limited occasions since 2000, and hold a voting blocking minority. With the sheer size of the crisis and its fund rapidly dwingling, the IMF needs to raise additional funds (late last year Strauss-Kahn requested $500 billion and so far only got the Japanese committing $100 billion) with Eastern Europe requiring more funds and Mexico being the next in line with $47 billion.

IMF gold represents +/- $100 billion at today's price.

===========================================================
--- Amounts (Billions)---
Limit Current
===========================================================
Total $12,798.14 $4,169.71
-----------------------------------------------------------
Federal Reserve Total $7,765.64 $1,678.71
Primary Credit Discount $110.74 $61.31
Secondary Credit $0.19 $1.00
Primary dealer and others $147.00 $20.18
ABCP Liquidity $152.11 $6.85
AIG Credit $60.00 $43.19
Net Portfolio CP Funding $1,800.00 $241.31
Maiden Lane (Bear Stearns) $29.50 $28.82
Maiden Lane II (AIG) $22.50 $18.54
Maiden Lane III (AIG) $30.00 $24.04
Term Securities Lending $250.00 $88.55
Term Auction Facility $900.00 $468.59
Securities lending overnight $10.00 $4.41
Term Asset-Backed Loan Facility $900.00 $4.71
Currency Swaps/Other Assets $606.00 $377.87
MMIFF $540.00 $0.00
GSE Debt Purchases $600.00 $50.39
GSE Mortgage-Backed Securities $1,000.00 $236.16
Citigroup Bailout Fed Portion $220.40 $0.00
Bank of America Bailout $87.20 $0.00
Commitment to Buy Treasuries $300.00 $7.50
-----------------------------------------------------------
FDIC Total $2,038.50 $357.50
Public-Private Investment* $500.00 0.00
FDIC Liquidity Guarantees $1,400.00 $316.50
GE $126.00 $41.00
Citigroup Bailout FDIC $10.00 $0.00
Bank of America Bailout FDIC $2.50 $0.00
-----------------------------------------------------------
Treasury Total $2,694.00 $1,833.50
TARP $700.00 $599.50
Tax Break for Banks $29.00 $29.00
Stimulus Package (Bush) $168.00 $168.00
Stimulus II (Obama) $787.00 $787.00
Treasury Exchange Stabilization $50.00 $50.00
Student Loan Purchases $60.00 $0.00
Support for Fannie/Freddie $400.00 $200.00
Line of Credit for FDIC* $500.00 $0.00
-----------------------------------------------------------
HUD Total $300.00 $300.00
Hope for Homeowners FHA $300.00 $300.00
-----------------------------------------------------------