The Ostrich Head

Russia Buys 16 percent Of Global Gold Production

According to the Russian Central Bank, Russian gold reserves just hiked 1.1 million ounces in May.  Given global mining production is just 6.8 million ounces a month, this represents 16.1% of monthly global mining production.  

This is the largest one month purchase of gold by the Russian Central Bank, which has been buying gold at a rate of 250,000 ounces a month for the past three years, and comes just as Putin is pushing for a single world currency and last week revealed the currency's first proof coin.

At the same time as Russia is quadrupling its gold purchases, Saudi Arabia just announced that it has more than doubled its gold holdings from 143 tonnes in the first quarter of 2008 to 322.9 tonnes.  That's 241,000 ounces a month -- eerily similar to Russia's purchases.

And nobody quite knows what China is doing right now, but they ain't sellers.  Between  2003 and 2009, China's central bank bought an average of 76 tons of gold a year (185,000 ounces a month).  The likelihood of China slowing its purchases is close to nil.  and the likelihood of China letting Russia and Saudi Arabia get the better of it is negligible at best.  Even if China is purchasing just 250,000 ounces a month, that would mean just thee central banks are sucking up 24% of global gold mine production.  In all likelihood, it's much higher.

If this trend continues, it's going to have other central banks jumping on the bandwagon to buy gold -- just as they jumped on the bandwagon to sell it in the 1990s -- and will have a similar impact on the price.  But in the opposite direction!

Cheers,

Peter.

Gold will hit $17,000 an ounce if the rest of the world follows Vietnam's lead

    According to the World Gold Council, Vietnam imported $2.3 billion worth of gold last year.  

     With a GDP of just $92.8 billion, that's 2.4% of GDP.

     Now, that's not a heck of a lot.  Most people can save $2.40 for every $100 they earn to put it into gold.  Heck, I put more like 10% of my income into precious metals.

    But what if the rest of the world were to follow Vietnam's lead and invest 2.4% of the world's GDP into gold?

     With a nominal GDP of $58 trillion (PPP is more like $70 trillion), putting just 2.4% into gold would be $1,392 billion a year.

     At $1,250 an ounce, that would translate into 1,136 million ounces of gold per year.  But global mine production is just 2,554 tonnes, or 82.1 million ounces.

     So, for prices to be stable (and assuming nobody uses gold for dentistry or electronics and all jewellery is made from recycled gold) 82.1 million ounces would have to be worth $1,392 billion: $17,000 an ounce.

     Will we ever get to that number?  Absolutely, and in our lifetimes... but by the time we do, the Federal Reserve will have printed so much more money that $17,000 won't be a realistic end point -- it'll just be a waypoint that whizzes past as fiat currencies continue their slide into oblivion.  

  

    Cheers,

 

    Peter.