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Category: Bullion Bulletin

Bullion Bulletin: Europe’s richest go the polls

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On Sunday, Germans go to the polls to elect a new Chancellor. The new Chancellor will replace Angela Merkel, who has had the job for the past 16 years. One thing seems certain – whoever replaces Merkel they are unlikely to touch Germany’s official gold reserves, which now stand at 3,362.4 tonnes.

Europe Graph

Only the US has more gold in its official reserves, 8,133.5 tonnes. Germany’s appalling experience of hyperinflation – when prices rise by 50% or more a month – during the 1919-23 period of the Weimar Republic has left deep scars in the national DNA. For Germany and most Germans gold is synonymous with stability.

At the outset of the 1914-18 war, Germany decided to pay for the war by borrowing; when it was defeated it was saddled with vast debts. The debt problem was exacerbated by printing money without the economic resources to back it. For some Germans the money creation now being done by the US Federal Reserve, the European Central Bank (and others) is an uncomfortable reminder of that distressing past of around a century ago.

During the Cold War, when the threat of a Russian invasion of the-then West Germany was taken seriously, Germany stored 1,500 tonnes of its official reserves in the underground vaults of the New York Federal Reserve. The need for that safe-keeping has diminished.

Politicians, notably Peter Boehringer, a former asset manager and now a member of parliament representing the Eurosceptic Alternative for Germany (AfD) party, pushed in 2012 to get the gold back. Boehringer said then: “People are always interested in gold, but we live in a time when central banks are running amok. In 1971, all currencies were linked to gold. That’s no longer the case, and the behaviour of central banks is ridiculous. More and more people can see that”.

In January 2013 Germany’s central bank, the Bundesbank, started the process of repatriating half of that gold – more than 53,000 bars. In the first half of this year physical bullion demand in Germany was the highest since 2009; inflation in Germany is the highest in more than a decade.

 

Bullion Bulletin: Back to where it came from

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Gold is an element, which means it can’t be made through ordinary chemical reactions. To make gold, 79 protons and 118 neutrons have to be fused together to form a single atomic nucleus. That kind of intense nuclear fusion only happens when neutron stars collide.

Gold is made in space; and gold is going back into space on 18 December. That’s the day scheduled to send 48.25 grams into the sky, at a speed of 25,000 miles per hour or seven miles per second. The gold will coat the primary mirror – all 21.5 feet across – of the James Webb Space Telescope, carried on an Ariane 5 rocket.

One of the unusual characteristics of gold is its amazing ductility – one ounce of gold can be drawn out into 50 miles of gold wire just five microns thick; that’s five millionths of a meter. The gold coating on the Webb telescope, covering 25 square meters, will be just 600 atoms thick. The telescope will be the largest and most powerful ever launched into space. The purpose of this $10 billion mission is to look into the birth of the first galaxies in the early Universe.

The gold coating significantly increases the reflectivity of the telescope in infrared light. The coating needs to be thick enough to cover the mirror entirely, but thin enough to not affect the mirrors when they expand or contract through temperature changes. Gold coatings are used on spacecraft and astronaut helmets to protect them from radiation.

Could gold mining one day go extra-terrestrial? The Psyche asteroid, which was discovered in 1852, has a diameter of some 140 miles, and orbits the Sun between Mars and Jupiter’s orbits is thought to contain a motherlode of metal including gold, iron and nickel, with a value put at about $700 quintillion – that’s $700, 000,000,000,000,000,000! NASA is planning a mission to carry out initial exploration of Psyche in 2026. It’s going to be a while before any Psyche gold is mined.

Bullion Bulletin: India’s gold buying

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In August, India imported 121 tonnes of gold, according to a report from Reuters . This was almost twice what it bought in August 2020, 63 tonnes. In the first eight months of this year, the country’s gold imports went up three-fold compared to the same period of 2020, to 687 tonnes.

2020 was an anomaly thanks to the global pandemic. In the April-June quarter of 2020, the Indian economy shrank by around 24% but in the same quarter of this year it grew by more than 20%. The government says that consumer price inflation this year is likely to be 5%-6%, although the inflation for many basic food commodities is running much higher; local cooking oil prices in July were about 33% higher than the previous year.

In the period running up to Diwali, the festival of light – which falls on 4 November this year – Indians traditionally buy and give gold. India’s jewellers and gold retailers took advantage of the gold price dip in early August to build up inventory ahead of this year’s festivities and expected upsurge in gold buying. The exchange value of India’s currency, the Rupee, against the US Dollar has fallen by more than 2,000% since the country gained independence in 1947.

Bullion Bulletin: Gold buying picks up

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According to data from the World Gold Council (WGC), the Covid-19 pandemic’s negative effect on gold purchases looks like it ended in the first half of 2021 – it says that gold jewelry demand in China – a big consumer of bullion – more than doubled in the first half of 2021 year-on-year and reached pre-pandemic levels.

The same source asserts that this uplift in gold demand was repeated in Germany, where according to the WGC demand for gold bars and coins rose by 35% in the first half of this year compared to the previous six months. Negative interest rates in Europe are making non-yielding assets such as gold more attractive to buyers, who are also very nervous about inflation eroding the purchasing power of their fiat money.

As for inflation, which historically is associated with shortages – i.e. when the supply of money goes up much faster than the supply of goods and services – the supply-chain bottlenecks in all types of products (most obviously computer chips) could be with us well into 2022. The Baltic Dry Index, which measures the price of shipping raw materials globally, has more than tripled recently, as the supply of containers is constrained. German inflation in August was 3.9% compared to 3.8% in July; the harmonised index relevant for the European Central Bank jumped to 3.4%, from 3.1% in July.

 

Bullion Bulletin: Tech company buys physical gold

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The US listed software company Palantir Technologies, which is based in Denver, Colorado, has bought $50.7 million of gold.

Several factors make this important news.

The first is that Palantir was founded by Peter Thiel (alongside others) in 2003. Earlier this year Thiel was one of the backers of a new cryptocurrency asset exchange called Bullish Global. So while Thiel clearly believes in cryptocurrencies – he has called himself a “bitcoin maximalist” – it is telling that a company close to his interests is hedging its bets.

The second is the justification given by Palantir for buying gold. According to Shyam Sankar, Palantir’s chief operating officer, “you have to be prepared for a future with more black swan events”. Social media has quickly become crowded by people looking for conspiracy theories. One poster has written “One of Palantir’s biggest customers is the CIA… I’m sure they have some inside information on what is about to happen”.

The third is that Palantir bought physical bullion, 100-ounce gold bars, not gold derivatives. Glint clients who buy gold have allocated gold, which they own, like Palantir.

Some point out that the share of Palantir’s available cash going into this gold purchase is just 3%. Not a huge amount – but symbolic.

If the tech-driven Palantir is worrying about ‘black swans’ in a world that seems to becoming more unstable, then far from being old-fashioned and passé, gold remains a means of security – and Glint is the key.