-->The London Bullion Market Association
Bullion Market Forum
Baltschug Kempinsky Hotel, Moscow
June 3-4, 2004
Perspectives on Gold: Central Bank Viewpoint
By Oleg V. Mozhaiskov, Deputy Chairman
Bank of Russia
I would like to thank the conference organisers
for this opportunity to share my thoughts on
such a complex, even mythical subject as gold
and the prospects for the near and medium-term.
I assume that the request was made for one
simple reason: that I, as a senior executive of
the Bank of Russia, should know more than
other ordinary mortals.
In general, this logic is flawed, although there is
sense to it: It is necessary to understand the
Central Bank perspective regarding this
precious metal, particularly given that it does
have approximately 500 tonnes of the metal in
its vaults.
It is from this perspective, that of central bank,
that I intend to base my presentation. I hope you
can understand that it is quite a specific topic,
management of gold reserves. This is distinct
from the views adopted by gold prospectors,
industrialists, investors, speculators, and
ordinary purchasers of jewellery.
For the central bank, the gold stock is the
international payment reserve for the whole
country -- for the state authorities, private
companies and corporations, as well as individual
citizens. Like any reserve, it needs to be
conserved, in terms of both actual physical form
and its value. To a lesser extent, we need to be
concerned about its liquidity, or more precisely,
market price developments.
The central bank's duties in managing gold
reserves may therefore not seem particularly
onerous to a commercial trader, who has to
close dozens of transactions daily to achieve
results by the end of the day.
In this there is a grain of truth. The central bank's
specialists do not have to follow real-time price
movements every day and every minute, or react
instantaneously to every little twist and turn in the
market. We are concerned with other, less
immediate problems regarding gold. In a figurative
sense the central bank's attitude can be compared
with that to a giraffe. I have in mind an image of an
animal that suggests certain ambiguity, at least in
the Russian language.
On the one hand, when Russians say that someone
is reacting like a giraffe, they are highlighting that
person's slow reaction. It even suggests a degree
of slow-wittedness. On the other hand, the evident
magnificence of the animal commands respect.
"The giraffe is tall, and he sees all" -- the words of
the Russian bard Vladimir Vysotskii are well known
throughout Russia.
With this allegory in mind, I would like to mention
the issues concerning gold which fall within the
"giraffe category", or more formally, present
concerns of a central bank.
These are several: the volume of actual precious
metal stock, both in absolute and relative terms
(essentially, the optimum component of the metal
in total monetary reserves); methods of controlling
the stock; ensuring both security and availability
for liquidity purposes and at the same time
optimising income-earning potential. All these
issues reflect very practical concerns.
It may seem strange but all bear direct relation to a
problem that is often considered purely theoretical:
What is gold currently, and what will it be tomorrow?
Real money with intrinsic value? A raw material? A
cash commodity that has lost some of its monetary
functions? If so, what are the prospects -- complete
loss of gold's role or a restoration of lost functions,
in one form or another?
There is a wide circle of leading financiers who believe
that pondering on these themes is a fruitless academic
exercise. They are convinced that the heads of the
world's richest countries, who once agreed to abolish
exchange of national currencies for gold at a fixed rate,
have in fact demonetised gold altogether. In their eyes,
the existence of official gold reserves is simply a
remnant of the past, a financial monument to the gold
and gold-currency standards, which will ultimately be
absorbed by the global gold market. This market has
properly organised infrastructure, products, rules, and
procedures, and central banks are merely one of its
clientele. For them, this is the only reality to be
reckoned with.
Is this a true picture for gold in the modern world?
Many people do not think like this; the reality is more
complicated. The contemporary gold market has
emerged as a byproduct of a series of agreements
between governments, initiated by the United States
and supported by the other major powers, in whose
possession the bulk of all gold ever extracted lies.
These agreements (the most important of which were
the Jamaica Agreements of 1976) created ideal
conditions for stimulating international trade by means
of expanding credit facilities in national currencies.
The obligations on debtor countries to pay off the trade
deficits with gold (upon demand of the creditor
countries) severely limited the exporter countries'
opportunities for trade expansion. The importer
countries were made to live within their means,
predicated by their gold reserves. Gold was
therefore considered by a number of economists
and policy makers as an instrument guaranteeing
order and justice in international economic relations,
while others remained convinced that it hindered
international economic progress and development.
The latter, as you know, secured the upper hand.
That brief look back into the past was necessary to
make the following conclusion: The present state of
the gold market and its future cannot be analysed in
isolation from the problems of the international
monetary system.
Some people may question this conclusion because
of the incompatibility of the present volumes in the
respective gold and foreign currency markets. I would
suggest that the volumes do not matter for this
particular purpose. The modern monetary system,
although undoubtedly robust and long-standing, in
fact has a number of flaws and weaknesses. These,
like the birth of the new, can cause health problems
to the participants of the system.
This disconcerting phenomenon occurs because, by
taking gold out of international payments turnover,
people are undermining payment discipline. The
discipline I have in mind is at a macro-level; that is,
the discipline of rich industrial countries whose
convertible currencies have taken the role of an
international trade medium by virtue of their
economic strength and have been accepted by the
world community as reserve units of payment.
Although there are several reserve currencies, the
blatant lack of discipline is demonstrated by the U.S.
dollar. I am leaving aside the main aspects of this
problem, such as the social and economic injustice
of a world order that allows the richest country in the
world to live in debt, undermining the vital interests
of other countries and peoples. What is important for
us today is another aspect, which is connected with
the responsibility of the state issuing the reserve
currency and for the international community
preserving that currency's buying power.
Given the actual behaviour of the dollar on the forex
markets, the problem could be more accurately
termed the irresponsibility of the U.S. government in
relation to the market valuation of its currency in
international circulation.
Today the net debt owed by the United States to the
outside world (the so-called"international investment
position") is in the region of US$3 trillion. To
understand the scale of this figure, let me remind you
that it exceeds the total official currency reserves in
all the world's countries (including the United States
itself). According to the International Monetary Fund
statistics at last year-end, the world pool of foreign
currency reserves totalled Special Drawing Rights
2,013 billion or about US$2,800 billion. The volume
of cash only ("greenback" banknotes) available outside
the United States totals about US$400 billion.
The world has come to a paradoxical situation in which
the creditor countries are more concerned with the fate
of the dollar than the U.S. authorities themselves are.
Thus, the evolution of the U.S. dollar's reserve role in
recent years has given ground to some quite pessimistic
forecasts, based on rational economic theory. No wonder
that the number of people who have held assets in dollars
and now wish to diversify them partly into gold -- the
traditional shelter from inflation and political adversity
-- is steadily growing.
The statistical correlation between the market prices of
dollar and gold is obvious. For the problem we discuss
today it means specifically that gold, in addition to its
unique physical and chemical properties used in
industry, has retained its particular monetary
attractiveness for cautious financial investors, and its
market price is still heavily influenced by the state of
the international monetary system.
This dualism in gold price formation distinguishes it
from other commodities and makes the movements in the
price sometimes so enigmatic that market analysts
need to invent fantastic intrigues to explain price
dynamics. Many have heard of the group of economists
who came together in the society known as the Gold
Anti-Trust Action Committee and started a number of
lawsuits against the U.S. government, accusing it of
organising an anti-gold conspiracy. They believe that
with the assistance of a number of major financial
institutions (they mention in particular the Bank for
International Settlements, J.P. Morgan Chase,
Citigroup, Deutsche Bank, and others), some senior
officials have been manipulating the market since
1994. As a result, the price dropped below US$300 an
ounce at a time when it should, if it had kept pace with
inflation, reached US$740-760.
I prefer not to comment on this information but dare
assume that the specific facts included in the lawsuits
might have given ground to suspicion that the real
forces acting on the gold market are far from those of
classic textbooks that explain to students how prices
are born in a free market.
So even those who stick to traditional economic
theory in analysing and projecting gold market
developments should admit that various factors that
influence gold price interact between themselves in a
constantly changing manner, sometimes in a very odd
way. Here, as in nuclear physics, some factors briefly
disappear or cease to act, and in their place comes a
new dominant market factor. This causes confusion for
the forecasters in their efforts to build a logically
balanced model for the metal price movements.
So I do not even dare shed light on the methodology
of gold price forecasting, but would like to risk outlining
basic factors, which are permanently (and I stress
"permanently") acting on the market. There are four of
them -- two relating to the raw material properties of
gold and two to its monetary qualities.
As an economist educated in the Marxist school, I
believe that the base for gold prices is rooted in the
sphere of the real economy. Like any mineral raw
material, mined gold has its intrinsic value. This value
fluctuates quite significantly depending on the location,
time, and technology of extraction. The market averages
out the individual expenses, optimising them at a level
that is acceptable to the industry that uses the metal
in its production. The absolute values in monetary
terms for this factor fluctuate, although they are the
least mobile element of the price.
The production cost category has its own"floor and
ceiling." The technological particularities of gold
extraction determine the minimum price level at which
production is economically feasible in the industry
as a whole. We think that the worldwide level is currently
about US$200 per ounce. This is the minimum price limit.
With lower prices the industry will plunge into a zone of
catastrophe. So the average costs of gold production in
volumes sufficient to satisfy expected market demand
(over the past 15 years this has averaged 2,500 tonnes
with the upward trend) are the first factor.
The second factor is the real volumes of demand
generated by the consuming industries for physical gold.
The behaviour of industrialists (jewellery is playing the
most important role) is mainly caused by factors
connected with an economic activity cycle. During the
1990s there was a significant but uneven rise of demand
for jewellery: from 2,200 tonnes in 1990 to 3,200 tonnes
by the end of the decade, with a peak of 3,350 tonnes in
1997. The first three years of the new millennium saw a
decline of demand from jewellers; the volume of metal
purchased by the industry dropped down to 2,550 tonnes
in 2003. The fundamental correlation between gold prices
and the volume of demand from industry is normally linear
in character. This correlation cannot be the sole cause
behind the dramatic falls in prices, but can show a vector
for price movement, which can be enhanced or indeed
maximised through the efforts of speculators.
However, even when speculative activity is relatively quiet
this vector is not always clear. There are"anti-phases" in
economic activity in various parts of the world, and on top
of these, various national traditions in demand for the
metal.
A recent example of this occurred at the turn of the
century. After prices reached a 20-year low of US$252 in
May 1999, demand for physical metal increased and
pushed the price temporarily to a new"equilibrium level"
of US$300 by the end of the year. The concept of
"equilibrium" reflects the situation on the market when
its participants believe that they are aware of a balance
between supply and demand. It brings a measure of
price stability to the market.
Such a situation appeared to take place following the
central banks' Washington Agreement on Gold.
However, as soon as demand started to shrink again
and a danger of excess supply arose, prices went
down. This was the beginning of a two-year market
stagnation, with the price waving within a range of
US$270-290. It was not sufficient for the metal
producers, but they were unable to control the
situation. It was investors who made the weather on
the market.
Now the time has come to admit that investment
demand was, and still is, the main driving force behind
price fluctuations on the gold market. The changing
character of demand heavily depends on what is going
on in the international foreign currency and financial
markets.
The investors pay continuous attention firstly to the
dollar rate of exchange and secondly to the level of
interest rates for financial assets. The volatility of
these indicators directly influences investor interest
in gold. Since this interest is realised not through
operations with physical metal but through deals with
gold derivatives on stock-exchange and
non-stock-exchange markets (where gold is mentioned
only as a base asset), the volume of these deals can
exceed the volume of trade in physical metal dozens
of times. Last year turnover with gold derivatives was
about 4,000 million ounces (or 129,000 tonnes), but
physical metal actually sold totalled 120 million
ounces or some 3,860 tonnes. As it is said: Feel the
difference!
It is true that the markets for derivatives linked to
other raw materials also usually exceed the operations
with base assets. The difference in volumes are
incomparably less (five to 10 times). At the same time
the markets for derivatives with foreign currencies and
prime securities as base assets are developing every bit
as rapidly as the gold derivatives.
What can we infer from that?
One conclusion, at least, is clear: Gold is predominantly
a financial asset, not merely a precious metal.
In this capacity gold is competing with other financial
assets on a variety of parameters. Being inferior in
terms of returns, it is far more reliable than anything
else for protection against war-related, political,
financial, economic, and credit risks, and also provides
a high level of liquidity and lower management costs.
However, since the rate of return is the main measure
of success for financial institutions under normal
conditions, investment-related decisions depend
directly on the stability of the international monetary
system, strength (or weakness) of the dollar, and the
level of interest rates on financial markets.
This dependence is not linear in nature. Correlation
factors change from time to time because decisions
are taken by investors individually on the basis of their
market expectations. As a result, investors' reaction
may race ahead or lag behind developments on the
forex and financial markets. If we examine gold price
movements over the last 10-12 years, it becomes
clear that during the first half of the 1990s the
dominant factor was the weak dollar and the market
was still living in hope of a recurrence of the 1980s
"gold fever."
From 1997 onward, as the dollar strengthened, these
hopes were dispelled, investors turned around, and price
fell to the level of support on the physical market. It
seems to us that the depth and duration of this
depressed phase of gold prices were to a considerable
extent caused by the wide use of gold derivatives by
investors. Insofar as these instruments are intended for
protecting banks and their customers against unwanted
and unexpected changes in price dynamics, they can
provoke massive closing of the existing position at a
specific moment. This process may take the form of a
chain reaction. As a result, the price falls below the
level dictated by the sensible interests of investors.
I would also like to note that recently the central banks
have been playing a significant role in the gold market.
Low interest rates in the money markets and revaluation
of gold reserves in line with lower market prices have
exacerbated the problem of the financial efficiency of
gold stock management. To earn some income on the
stock and compensate for"book losses" caused by its
revaluation, a number of central banks have started to
place a part of their reserves into deposits with
commercial institutions -- leasing operations.
Data available to me suggest that these banks deposited
about 1,000 tonnes in 1991, and 10 years later the
volume of the deposits reached 4,800 tonnes. Naturally,
the central banks' activity increased market liquidity and
thus also put downward pressure on the gold price. The
influence of these operations, however, must not be
exaggerated. It is even incomparable with the pressure
that was exerted on the market of gold derivatives.
The same conclusion can be made about the central
banks' sale of some of their gold reserves. All market
participants have been paying particular attention to
these operations since September 1999, when 15
European central banks agreed in Washington on the
orderly sale of 2,000 tonnes of gold from their official
reserves over the next five years.
One month ago the agreement was extended for a
further five years (to September 2009), setting the total
sale limit at 2,500 tonnes or 500 tonnes per year. One
may wonder if these agreements and sales indirectly
indicate that these countries have embarked on a
long-term gold demonetisation programme and if their
statement that"gold will remain an important element
of global monetary reserves" is nothing but a sort of
soothing therapy for the market. Such opinions exist,
although they do not prevail.
I think that the agreements do not give ground for this
view.
First, the participating countries own between them
12,300 tonnes of gold. The share of the metal in their
official monetary reserves has reached 36 percent.
This is significantly higher than the average for all the
world's countries (10-12 percent). So the sales can
be seen as optimisation of the reserves structure.
Secondly, the countries making the sales (France,
Germany, and some others) are currently enduring
budget deficits exceeding the limits laid down by the
Maastricht Treaty. Hence, this may explain the
temptation to solve their budgetary problems without
reducing expenditure or raising taxes.
The current decisions by the monetary authorities in
European countries could therefore be considered
sensible, like the actions of certain Asiatic states that
in recent years increased the gold portion within their
monetary reserves. The internal imperfections of the
international monetary system (which I spoke about
earlier) have already led to a number of regional
financial crises and still carry the danger of larger
upheavals. Under these conditions, the growing
interest of investors in real assets, gold in particular,
is more than justified.
And on that optimistic note, I would like to end my
presentation.
|
-->Hi,
schön, dass wir wieder mal was aus dem Munde eines Herrn hören, der die Interessen seines Landes (Goldförderlandes) vertritt.
So eine Rede könnte der ZB-Chef von Südafrika 1:1 halten, dito die Herrn aus Kanada, Australien & alike.
Natürlich hält er die Rede auch vor dem absolut passenden Forum, nämlich:
The London Bullion Market Association
Was wollen die hören? Das wollen die hören.
Und am liebsten am deren Bullion Market Forum.
Ich nehme an, nach der artigen Rede lagen sich alle Bullion-Fritzen minutenlang unter Tränen in den Armen.
>I would like to thank the conference organisers
>for this opportunity to share my thoughts on
>such a complex, even mythical subject as gold
>and the prospects for the near and medium-term.
>I assume that the request was made for one
>simple reason: that I, as a senior executive of
>the Bank of Russia, should know more than
>other ordinary mortals.
Klar weiß er mehr, er ist (ich darfs verraten) nämlich unsterblich. Und 500 Tonnen unsterblichen Goldes hat er auch noch unter sich - Bravo!
>For the central bank, the gold stock is the
>international payment reserve for the whole
>country -- for the state authorities, private
>companies and corporations, as well as individual
>citizens.
Payment-Reserve klingt immer gut, noch dazu, wenn's eine für alle ist.
>Like any reserve, it needs to be
>conserved, in terms of both actual physical form
>and its value. To a lesser extent, we need to be
>concerned about its liquidity, or more precisely,
>market price developments.
Also Probleme mit der Konservierung der physikalischen Form wären mir neu. Aber man lernt immer gern was dazu.
>We [i.e. the central banks] are concerned with other, less
>immediate problems regarding gold. In a figurative
>sense the central bank's attitude can be compared
>with that to a giraffe. I have in mind an image of an
>animal that suggests certain ambiguity, at least in
>the Russian language.
>On the one hand, when Russians say that someone
>is reacting like a giraffe, they are highlighting that
>person's slow reaction. It even suggests a degree
>of slow-wittedness. On the other hand, the evident
>magnificence of the animal commands respect.
Ja, da legst di nieda.
>"The giraffe is tall, and he sees all" -- the words of
>the Russian bard Vladimir Vysotskii are well known
>throughout Russia.
>With this allegory in mind, I would like to mention
>the issues concerning gold which fall within the
>"giraffe category", or more formally, present
>concerns of a central bank.
Und ich dachte immer der KGB sähe dort alles.
>These are several: the volume of actual precious
>metal stock, both in absolute and relative terms
>(essentially, the optimum component of the metal
>in total monetary reserves); methods of controlling
>the stock; ensuring both security and availability
>for liquidity purposes and at the same time
>optimising income-earning potential. All these
>issues reflect very practical concerns.
Also jetzt geht's zur Sache. Der Praktiker holt aus.
>It may seem strange but all bear direct relation to a
>problem that is often considered purely theoretical:
>What is gold currently, and what will it be tomorrow?
>Real money with intrinsic value? A raw material? A
>cash commodity that has lost some of its monetary
>functions? If so, what are the prospects -- complete
>loss of gold's role or a restoration of lost functions,
>in one form or another?
Die"lost function" ist fix wieder da: Gold zu GZ erklären - fertig! Dazu braucht's keine Restauration (klingt auch so out-dated), sondern ein flink geschriebener Ukas von Meister Putin himself.
>There is a wide circle of leading financiers who believe
>that pondering on these themes is a fruitless academic
>exercise. They are convinced that the heads of the
>world's richest countries, who once agreed to abolish
>exchange of national currencies for gold at a fixed rate,
>have in fact demonetised gold altogether.
Tja, demonetisiert (de-gzt) haben sie bestens. Oder darf noch wer seine Steuern in Gold bezahlen?
>In their eyes,
>the existence of official gold reserves is simply a
>remnant of the past, a financial monument to the gold
>and gold-currency standards, which will ultimately be
>absorbed by the global gold market. This market has
>properly organised infrastructure, products, rules, and
>procedures, and central banks are merely one of its
>clientele. For them, this is the only reality to be
>reckoned with.
Ja, der Goldmarkt funktioniert so fein wie alle Märkte zur Cassa und auf Termin.
>Is this a true picture for gold in the modern world?
>Many people do not think like this; the reality is more
>complicated. The contemporary gold market has
>emerged as a byproduct of a series of agreements
>between governments, initiated by the United States
>and supported by the other major powers, in whose
>possession the bulk of all gold ever extracted lies.
Bei jedem Abschied fließen Tränen...
>These agreements (the most important of which were
>the Jamaica Agreements of 1976) created ideal
>conditions for stimulating international trade by means
>of expanding credit facilities in national currencies.
1976 war eine Beerdigung Dritter Klasse. Die Leiche lag schon 5 Jahre im Kühlfach.
>The obligations on debtor countries to pay off the trade
>deficits with gold (upon demand of the creditor
>countries) severely limited the exporter countries'
>opportunities for trade expansion. The importer
>countries were made to live within their means,
>predicated by their gold reserves. Gold was
>therefore considered by a number of economists
>and policy makers as an instrument guaranteeing
>order and justice in international economic relations,
>while others remained convinced that it hindered
>international economic progress and development.
>The latter, as you know, secured the upper hand.
Wie wahr. Man stelle sich vor, die USA hätten ihr ganzes Gold abliefern müssen ("upon the demand of the creditor countries") und danach nix mehr gehabt. Womit hätten sie die schönen Waren aus aller Welt bezahlen können, deren Verkauf in die USA doch schönen"Progress" außerhalb der USA beschert haben. VW wäre schon zur Unzeit verschieden. Heute jaulen sie auf, dass ihr US-Verkauf um 28 Prozent"eingebrochen" sei. Ein längst verschwundener VW-Konzern könnte wenigstens nicht mehr jaulen (ohrenschonend).
>That brief look back into the past was necessary to
>make the following conclusion: The present state of
>the gold market and its future cannot be analysed in
>isolation from the problems of the international
>monetary system.
Das"monetary system" hat keine Probleme. Aber das Kreditsystem.
>Some people may question this conclusion because
>of the incompatibility of the present volumes in the
>respective gold and foreign currency markets. I would
>suggest that the volumes do not matter for this
>particular purpose. The modern monetary system,
>although undoubtedly robust and long-standing, in
>fact has a number of flaws and weaknesses. These,
>like the birth of the new, can cause health problems
>to the participants of the system.
Die Krankheit ("health problem") heißt Überschuldung.
>This disconcerting phenomenon occurs because, by
>taking gold out of international payments turnover,
>people are undermining payment discipline. The
>discipline I have in mind is at a macro-level; that is,
>the discipline of rich industrial countries whose
>convertible currencies have taken the role of an
>international trade medium by virtue of their
>economic strength and have been accepted by the
>world community as reserve units of payment.
Die"world community" hat das zu akzeptieren, was als GZ vorgeschrieben ist. Fertig.
>Although there are several reserve currencies, the
>blatant lack of discipline is demonstrated by the U.S.
>dollar.
Aha, jetzt kommt der moralin-getränkte Russen-Finger.
>I am leaving aside the main aspects of this
>problem, such as the social and economic injustice
>of a world order that allows the richest country in the
>world to live in debt, undermining the vital interests
>of other countries and peoples.
Und wer lebt suupi von den US-Schulden?"Other countries & peoples"!
>What is important for
>us today is another aspect, which is connected with
>the responsibility of the state issuing the reserve
>currency and for the international community
>preserving that currency's buying power.
"Responsibility of the (a) state" - totlach.
>Given the actual behaviour of the dollar on the forex
>markets, the problem could be more accurately
>termed the irresponsibility of the U.S. government in
>relation to the market valuation of its currency in
>international circulation.
Wenn meine Schulden automatisch weniger wert werden - Klasse! Oder?
>Today the net debt owed by the United States to the
>outside world (the so-called"international investment
>position") is in the region of US$3 trillion. To
>understand the scale of this figure, let me remind you
>that it exceeds the total official currency reserves in
>all the world's countries (including the United States
>itself). According to the International Monetary Fund
>statistics at last year-end, the world pool of foreign
>currency reserves totalled Special Drawing Rights
>2,013 billion or about US$2,800 billion. The volume
>of cash only ("greenback" banknotes) available outside
>the United States totals about US$400 billion.
Die USA brauchen keinen SDRs - komischerweise aber die anderen.
>The world has come to a paradoxical situation in which
>the creditor countries are more concerned with the fate
>of the dollar than the U.S. authorities themselves are.
Darauf hatte schon Popeye hingewiesen. Die Gläubiger schlafen richtig schlecht.
>Thus, the evolution of the U.S. dollar's reserve role in
>recent years has given ground to some quite pessimistic
>forecasts, based on rational economic theory. No wonder
>that the number of people who have held assets in dollars
>and now wish to diversify them partly into gold -- the
>traditional shelter from inflation and political adversity
>-- is steadily growing.
Warum nicht in andere"Währungen" (GZs) diversifizieren? Bringt doch mehr, wenn sich schon jemand um"the fate of the dollar" barmt. Es geht auch nicht um"den" Dollar, sondern ausschließlich um Dollarforderungen. Das muss man in Russland noch zu unterscheiden lernen.
>The statistical correlation between the market prices of
>dollar and gold is obvious. For the problem we discuss
>today it means specifically that gold, in addition to its
>unique physical and chemical properties used in
>industry, has retained its particular monetary
>attractiveness for cautious financial investors, and its
>market price is still heavily influenced by the state of
>the international monetary system.
Kreditsystem, Genosse!
>This dualism in gold price formation distinguishes it
>from other commodities and makes the movements in the
>price sometimes so enigmatic that market analysts
>need to invent fantastic intrigues to explain price
>dynamics. Many have heard of the group of economists
>who came together in the society known as the Gold
>Anti-Trust Action Committee and started a number of
>lawsuits against the U.S. government, accusing it of
>organising an anti-gold conspiracy. They believe that
>with the assistance of a number of major financial
>institutions (they mention in particular the Bank for
>International Settlements, J.P. Morgan Chase,
>Citigroup, Deutsche Bank, and others), some senior
>officials have been manipulating the market since
>1994. As a result, the price dropped below US$300 an
>ounce at a time when it should, if it had kept pace with
>inflation, reached US$740-760.
Dumm gelaufen. Nicht mal die Infla reingeholt.
>I prefer not to comment on this information but dare
>assume that the specific facts included in the lawsuits
>might have given ground to suspicion that the real
>forces acting on the gold market are far from those of
>classic textbooks that explain to students how prices
>are born in a free market.
>So even those who stick to traditional economic
>theory in analysing and projecting gold market
>developments should admit that various factors that
>influence gold price interact between themselves in a
>constantly changing manner, sometimes in a very odd
>way. Here, as in nuclear physics, some factors briefly
>disappear or cease to act, and in their place comes a
>new dominant market factor. This causes confusion for
>the forecasters in their efforts to build a logically
>balanced model for the metal price movements.
Logik auf Märkten?
>So I do not even dare shed light on the methodology
>of gold price forecasting, but would like to risk outlining
>basic factors, which are permanently (and I stress
>"permanently") acting on the market. There are four of
>them -- two relating to the raw material properties of
>gold and two to its monetary qualities.
>As an economist educated in the Marxist school, I
>believe that the base for gold prices is rooted in the
>sphere of the real economy. Like any mineral raw
>material, mined gold has its intrinsic value.
Seine Arbeitswert-Theorie hat der alte Marxist wenigstens nicht verlernt.
>This value
>fluctuates quite significantly depending on the location,
>time, and technology of extraction. The market averages
>out the individual expenses, optimising them at a level
>that is acceptable to the industry that uses the metal
>in its production. The absolute values in monetary
>terms for this factor fluctuate, although they are the
>least mobile element of the price.
>The production cost category has its own"floor and
>ceiling." The technological particularities of gold
>extraction determine the minimum price level at which
>production is economically feasible in the industry
>as a whole. We think that the worldwide level is currently
>about US$200 per ounce. This is the minimum price limit.
Ach was! Fahr die Löhne runter, schreib nix mehr ab, usw., usw.
>With lower prices the industry will plunge into a zone of
>catastrophe. So the average costs of gold production in
>volumes sufficient to satisfy expected market demand
>(over the past 15 years this has averaged 2,500 tonnes
>with the upward trend) are the first factor.
Von dem dauernden Nachfrage-Plus sieht man leider nur wenig im Preis.
>The second factor is the real volumes of demand
>generated by the consuming industries for physical gold.
>The behaviour of industrialists (jewellery is playing the
>most important role) is mainly caused by factors
>connected with an economic activity cycle. During the
>1990s there was a significant but uneven rise of demand
>for jewellery: from 2,200 tonnes in 1990 to 3,200 tonnes
>by the end of the decade, with a peak of 3,350 tonnes in
>1997. The first three years of the new millennium saw a
>decline of demand from jewellers; the volume of metal
>purchased by the industry dropped down to 2,550 tonnes
>in 2003.
So kann's gehen. Und warum sollte der Preis bei fallender Nachfrage steigen?
>The fundamental correlation between gold prices
>and the volume of demand from industry is normally linear
>in character. This correlation cannot be the sole cause
>behind the dramatic falls in prices, but can show a vector
>for price movement, which can be enhanced or indeed
>maximised through the efforts of speculators.
>However, even when speculative activity is relatively quiet
>this vector is not always clear. There are"anti-phases" in
>economic activity in various parts of the world, and on top
>of these, various national traditions in demand for the
>metal.
>A recent example of this occurred at the turn of the
>century. After prices reached a 20-year low of US$252 in
>May 1999, demand for physical metal increased and
>pushed the price temporarily to a new"equilibrium level"
>of US$300 by the end of the year. The concept of
>"equilibrium" reflects the situation on the market when
>its participants believe that they are aware of a balance
>between supply and demand. It brings a measure of
>price stability to the market.
>Such a situation appeared to take place following the
>central banks' Washington Agreement on Gold.
>However, as soon as demand started to shrink again
>and a danger of excess supply arose, prices went
>down. This was the beginning of a two-year market
>stagnation, with the price waving within a range of
>US$270-290. It was not sufficient for the metal
>producers, but they were unable to control the
>situation. It was investors who made the weather on
>the market.
Alles altbekannt.
>Now the time has come to admit that investment
>demand was, and still is, the main driving force behind
>price fluctuations on the gold market. The changing
>character of demand heavily depends on what is going
>on in the international foreign currency and financial
>markets.
Jetzt wird's spannend.
>The investors pay continuous attention firstly to the
>dollar rate of exchange and secondly to the level of
>interest rates for financial assets. The volatility of
>these indicators directly influences investor interest
>in gold. Since this interest is realised not through
>operations with physical metal but through deals with
>gold derivatives on stock-exchange and
>non-stock-exchange markets (where gold is mentioned
>only as a base asset), the volume of these deals can
>exceed the volume of trade in physical metal dozens
>of times. Last year turnover with gold derivatives was
>about 4,000 million ounces (or 129,000 tonnes), but
>physical metal actually sold totalled 120 million
>ounces or some 3,860 tonnes. As it is said: Feel the
>difference!
Der Genosse kennt den Zins-Derivate-Markt noch nicht. Der macht 95 % der Derivate-Märkte aus. Da liegt das Verhältnis nicht bloß bei Faktor 33... (Wer will kann's ja mal ausrechnen).
>It is true that the markets for derivatives linked to
>other raw materials also usually exceed the operations
>with base assets. The difference in volumes are
>incomparably less (five to 10 times). At the same time
>the markets for derivatives with foreign currencies and
>prime securities as base assets are developing every bit
>as rapidly as the gold derivatives.
Much, much more rapidly.
>What can we infer from that?
>One conclusion, at least, is clear: Gold is predominantly
>a financial asset, not merely a precious metal.
Was für eine elegante Volte! Je mehr in etwas derivativ gezockt wird, desto eher haben wir es mit einem"financial asset" zu tun. Ich hatte mal in Maine Potatoes gezockt und als das settlement kam, konnte nicht geliefert werden. Also? Also waren damals sogar Kartoffeln"financial assets".
>In this capacity gold is competing with other financial
>assets on a variety of parameters. Being inferior in
>terms of returns, it is far more reliable than anything
>else for protection against war-related, political,
>financial, economic, and credit risks, and also provides
>a high level of liquidity and lower management costs.
Schönes Argument. In"credit risks" wird mehr als in raw materials gezockt, also ist jenes raw material, in dem am meisten gezockt wird, ein"financial asset". In FAs wird aber gezockt, um dort Verluste zu vermeiden (hedge, hedge). Also wird in Gold gezockt, um dort Gewinne zu erzielen.
>However, since the rate of return is the main measure
>of success for financial institutions under normal
>conditions, investment-related decisions depend
>directly on the stability of the international monetary
>system, strength (or weakness) of the dollar, and the
>level of interest rates on financial markets.
In FAs kann ich runter zocken, bis auf Null. In Gold aber nur bis auf 200, weil dort - siehe oben - dann steht: Ab jetzt kanns nur noch aufwärts gehen.
>This dependence is not linear in nature. Correlation
>factors change from time to time because decisions
>are taken by investors individually on the basis of their
>market expectations. As a result, investors' reaction
>may race ahead or lag behind developments on the
>forex and financial markets. If we examine gold price
>movements over the last 10-12 years, it becomes
>clear that during the first half of the 1990s the
>dominant factor was the weak dollar and the market
>was still living in hope of a recurrence of the 1980s
>"gold fever."
>From 1997 onward, as the dollar strengthened, these
>hopes were dispelled, investors turned around, and price
>fell to the level of support on the physical market.
Also sind beim"level of support" alle long? Das ist ja noch besser als bei 35 $/oz. long gewesen zu sein.
>It
>seems to us that the depth and duration of this
>depressed phase of gold prices were to a considerable
>extent caused by the wide use of gold derivatives by
>investors.
Mit anderen Worten: Weil's im Ergebnis wurscht ist, ob ich rauf oder runter zocke, habe ich runter gezockt, bis"the level" erreicht war. Warum sollte ich dann nicht eines Tages wieder Richtung"level" zocken?
>Insofar as these instruments are intended for
>protecting banks and their customers against unwanted
>and unexpected changes in price dynamics, they can
>provoke massive closing of the existing position at a
>specific moment. This process may take the form of a
>chain reaction. As a result, the price falls below the
>level dictated by the sensible interests of investors.
Ja, dann ist's ganz schlecht.
>I would also like to note that recently the central banks
>have been playing a significant role in the gold market.
Womit wir gleich zwei"levels" haben:
1. Das, wenn die ZBs mit ihren Faxen aufhören.
2. Das, ab dem die Minen schließen.
>Low interest rates in the money markets and revaluation
>of gold reserves in line with lower market prices have
>exacerbated the problem of the financial efficiency of
>gold stock management. To earn some income on the
>stock and compensate for"book losses" caused by its
>revaluation, a number of central banks have started to
>place a part of their reserves into deposits with
>commercial institutions -- leasing operations.
Tempi passati. Also, was jetzt?
>Data available to me suggest that these banks deposited
>about 1,000 tonnes in 1991, and 10 years later the
>volume of the deposits reached 4,800 tonnes. Naturally,
>the central banks' activity increased market liquidity and
>thus also put downward pressure on the gold price. The
>influence of these operations, however, must not be
>exaggerated. It is even incomparable with the pressure
>that was exerted on the market of gold derivatives.
>The same conclusion can be made about the central
>banks' sale of some of their gold reserves. All market
>participants have been paying particular attention to
>these operations since September 1999, when 15
>European central banks agreed in Washington on the
>orderly sale of 2,000 tonnes of gold from their official
>reserves over the next five years.
>One month ago the agreement was extended for a
>further five years (to September 2009), setting the total
>sale limit at 2,500 tonnes or 500 tonnes per year. One
>may wonder if these agreements and sales indirectly
>indicate that these countries have embarked on a
>long-term gold demonetisation programme and if their
>statement that"gold will remain an important element
>of global monetary reserves" is nothing but a sort of
>soothing therapy for the market. Such opinions exist,
>although they do not prevail.
>I think that the agreements do not give ground for this
>view.
Ja, der Markt ist schlauer als der Markt. Der erste Markt zockt, weil er im Gold ein"financial asset" sieht, ultimativ wie die ZBs versichern. Der zweite zockt, weil die ZBs in ihm keine FA mehr sehen.
>First, the participating countries own between them
>12,300 tonnes of gold. The share of the metal in their
>official monetary reserves has reached 36 percent.
>This is significantly higher than the average for all the
>world's countries (10-12 percent). So the sales can
>be seen as optimisation of the reserves structure.
Klasse! Das dritte"level" kommt in Sicht. Wenn auch die Gold-Fett-ZBs auf 10-12 % runter sind.
>Secondly, the countries making the sales (France,
>Germany, and some others) are currently enduring
>budget deficits exceeding the limits laid down by the
>Maastricht Treaty. Hence, this may explain the
>temptation to solve their budgetary problems without
>reducing expenditure or raising taxes.
>The current decisions by the monetary authorities in
>European countries could therefore be considered
>sensible, like the actions of certain Asiatic states that
>in recent years increased the gold portion within their
>monetary reserves.
Ja, China, weil es seine IMF-Beteiligung auffüllen musste.
>The internal imperfections of the
>international monetary system (which I spoke about
>earlier) have already led to a number of regional
>financial crises and still carry the danger of larger
>upheavals.
Klar erkannt.
>Under these conditions, the growing
>interest of investors in real assets, gold in particular,
>is more than justified.
Im Gegenteil. Sind die"financial crises" endlich da, wird just das Geld fehlen (wie sonst sollte eine FC definiert sein, wenn nicht durch Geld das"fehlt"?), um groß ins Gold zu steigen. Da stehen die Gerichtsvollzieher Schlange.
>And on that optimistic note, I would like to end my
>presentation.
Und warum kauft er selbst kein Gold? Der arme Kerl predigt Wein und bleibt beim Wasser.
Schaut's bloß (obere Tabelle):
Naja, für ein Bullion Market Forum hat's gereicht.
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