With the current inflation surge, the precious metals have been acting disappointingly, despite the fact that they showed growth, because everything else grew more – food, fuel, cost of living in general. However, let me just show you this:
So, we have a situation where gold is being a “poor performer”, and the central banks are buying it at almost unprecedented rates, as if it’s a hot commodity on discount. The explanation for this apparent paradox is that the spot price of precious metals is, basically, the price of “paper” that says “gold” or “silver”, because that’s what most of the spot market consists of. This spot price is controlled by the UK and the USA, with the purpose of propping up their own paper currencies. The problem with controlling the price of gold by making it artificially lower is that the people “in the know” will buy all the physical metal you are holding, and they won’t even consider the “paper” gold. That’s what the chart is showing – the central banks are hoarding physical metal, while all the ignorant actors look at the gold price chart and think there are better deals to be had elsewhere. At some point, if things continue like this, the large buyers will leech all the physical metal from the market, and then the price will start spiking and everybody else will wake up and smell the coffee, but by then the scarcity will hit the market so hard that the price of gold will start following the pattern of Bitcoin (I mean the prices in the range of $60k per troy ounce).
Edit: It turned out there was an error in the chart above, and it was actually the record year:
I edited the article because it turned out that the original chart was wrong; they inverted the historic data series and 2022 is actually the greatest buying year for the central banks since the records exist.
https://www.imf.org/en/Publications/WP/Issues/2023/01/27/Gold-as-International-Reserves-A-Barbarous-Relic-No-More-528089
A “poor performer”?! I mean, I know they’re talking about last few months, but gold was literally the second best performing major asset in 2022 (after US dollar). Not because “a number went up” but because for everything else “a number went down”, significantly.
Euro went down up to 20% for the past two years before regaining some of it lately, S&P500 had 30% crash in 2022, Nasdaq was down 35% as technology stocks were hit the worst, emerging markets went down 15%, and kids with crypto and meme stocks were obliterated. Bonds were falling at the same time as stocks which is unprecedented and completely wrecked traditional 60/40 portfolio. 2022 was probably the worst year for markets ever.
Everybody is so sick and tired of everything going down constantly that absence of bad news was enough to spark a relief rally in the past month or two. Hopefully that continues a bit as JPow will now likely shut up and stop meddling until March. Markets rallying likely means gold will pull back a bit in the next month or so.
Trouble is, people have now run out of cash accumulated from government subsidies, unemployment is rising, real estate market is getting worse by the minute, and while last year Wall Street was hurting badly, this year Main Street will probably feel more pain. That will lead to more bad earning calls for companies, which will lead to more layoffs, and slow down economy even more. At that point central bankers will try to inflate their way out of the whole mess again, hoping they have so far increased interest rates high enough from zero without killing the economy that they can lower them enough to jumpstart the economy again. This time, they might lose that bet.
Well, considering how much the living expenses went up, my assessment is that gold grew less than the real inflation, and thus my “underperformance” assessment; however, considering how much physical metal changed hands in 2022, I would expect closure of the “gold window” soon enough, because the insiders seem to think that physical gold is super cheap right now and are buying it by the hundreds of tons. The last time that happened, Nixon had to end the remnants of the gold standard in order not to lose all the gold reserves.
BTW seems that even CNB (HNB) bought 2 tons of gold recently.
I think there’s some behind-the-scenes game there, like, BIS or MMF/WB telling the national central banks to get gold because that’s what the new currency is going to be based on. Pitty our local banktards sold it all at $250/oz or something in the early 2000s. The loss from that transaction must have been monumental.
I linked the article, but link is the same color as text so I guess you didn’t see it:
https://www.tportal.hr/biznis/clanak/hrvatska-narodna-banka-kupila-je-tonu-i-pol-zlata-pa-ga-pohranila-u-frankfurtu-otkrili-smo-sto-je-u-pozadini-tog-posla-foto-20230202
Yes, they sold 13.12 tons at $272 per ounce, and now they bought 2 tons at $1800 per ounce.
Yeah, that’s what you get for going for the “productive assets” instead of that useless gold that just sits there. 🙂 Fucking idiots.