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Who’s selling gold?

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  • Mon, Jan 05, 2009 - 06:30pm

    #1
    SamLinder

    SamLinder

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    Who’s selling gold?

I originally posted this in the "Late gold rally, New Year’s Eve" thread but fear it may have been lost in all the "noise".

I think this is a real valid question and would be very interested in what other members think.

You know, with everybody supposedly buying gold – you have to wonder
who is selling it and what they think the future holds. After all, what
are people using to buy gold – Fiat Currency. If fiat currency is
supposedly going to be no good, then why would holders of gold
(something which purportedly has value) exchange it for something that
purportedly is going to have little or no value (i.e. fiat currency)?

Would some enlightened soul out there please explain this one to me? My head hurts from all his stuff. Yell (ouch!)

 

  • Mon, Jan 05, 2009 - 07:01pm

    #2
    Farmer Brown

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    Re: Who’s selling gold?

Sellers of Gold:

1)  People who bought in early, can pocket a nice profit, and don’t believe there is a big upside to maintaining their position.

2)  People who need to liquidate in order to raise cash and pay off other debts or make investments necessary for the continuation or expansion of their business.

3)  Gold miners

4)  Over-leveraged hedge funds (might be a subcategory of #2) and other institutions. 

I am sure there are a lot more – there cannot be a buyer without a seller!

 

  • Mon, Jan 05, 2009 - 07:22pm

    #3
    SamLinder

    SamLinder

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    Re: Who’s selling gold?

Patrick,

All the folks you mentioned are still exchanging something of value (gold) for something which many believe will become worthless (fiat currency) in the near future. Either they are all very dumb or they know something the rest of us don’t.

Is it possible that the existing fiat currency will be exchanged for a new currency so that people don’t lose money? E.g. those of us who have our retirement money in bank CD’s.

Years ago when I served in the US Air Force overseas, the military would periodically exchange new "script" for old "script" to keep counterfeiting at bay. The exchange could only be done on the military bases so any civilians off-base that held the old "script" would be out of luck.

Logically, it doesn’t make sense for holders of gold to sell it for pieces of paper (FRN’s). There has to be something more to this than I’m seeing.

  • Mon, Jan 05, 2009 - 07:25pm

    #4

    Gaborzol

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    Re: Who’s selling gold?

On the practical side, BullionDirect (and online company) is, for one. They lately have a smaller selection, but they still have different kinds of selection (for a while they only had 100 ounce bars in gold:-). I have ordered from them a few times and so far I always got what I ordered, including just a bit over a month ago.

Gábor

  • Mon, Jan 05, 2009 - 07:40pm

    #5
    wdstk46

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    Re: Who’s selling gold?

Actually, it doesn’t take lots of selling to drive the price down, just a lack of buying.  For example, if gold is at $1000 and one person tries to sell at that price and finds only one offer at $800, that’s the new quoted price!  

While the coin market has been hot, jewelry sales (the bulk of gold transactions) are well off their former pace and even futures buying (and selling) has been down strongly since early last year.  Assets of all type have crashed since the middle of last year and lots of people are running scared.  The dollar has had it’s first real rally in years and looks poised to continue.  

These are all short-term issues, not long-term ones, so you need to decide whether you are buying gold for the long-haul or are going to be concerned about all the fluctuations.  Yes, a swing from $1000 to $700 is a heck of a "fluctuation" but it was a short-term move (under a year) and we may have more yet to come.  I wouldn’t be surprised to see $700 broken one last time (not a prediction!).

If you believe that the dollar is ultimately headed for a disaster, just buy the dips and enjoy the ride.  Don’t forget, for every seller, there is a buyer.  Figure out which ones are the smarter and do what they do.

 

Jim 

  • Mon, Jan 05, 2009 - 07:42pm

    #6
    grl

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    Re: Who’s selling gold?

Sam, I am definitely not enlightened but I do see one flaw in your otherwise logical question – you assume that fiat currency (or just the dollar) will be worthless at some point, and I assume you think that point will be in our lifetimes. If you ask around you will find that most people, even those who know what fiat currency is, will not agree with you. I know that the bullion dealer I deal with laughs off the idea, he has been in the gold biz for many years but he’s not a "gold bug." In fact, he thinks that the premiums on physical gold right now are ridiculous and is quite certain they will come down this year. Do I believe the dollar is heading for the gutter? Yes. Do I know that? No. There are many intelligent people out there, some of whom are selling gold, who believe the dollar and other fiat currencies will be with us for many years to come and in fact, even believe the dollar is going to prove to be the strongest one out there. ….. and believe it or not, gold is heading down.

  • Mon, Jan 05, 2009 - 07:51pm

    #7
    Farmer Brown

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    Re: Who’s selling gold?

[quote]

All the folks you mentioned are still exchanging something of value
(gold) for something which many believe will become worthless (fiat
currency) in the near future. Either they are all very dumb or they
know something the rest of us don’t.

Is it possible that the existing fiat currency will be exchanged for
a new currency so that people don’t lose money? E.g. those of us who
have our retirement money in bank CD’s.[/quote]

Most businesses cannot put their entire holdings in gold.  They need some portion of their reserves in cash to pay salaries, service contracts, buy equipment, pay debts, etc.   Take a school or university, for example:  they receive most of their annual revenue at the beginning of the year, when tuition is paid.  About 80% of that revenue is disbursed throughout the year just in salaries, and another 15% in other expenses.  Hopefully 5% gets saved for capital replacement.  You cannot just have it all in gold and liquidate part of your position every month to meet operating expenses.  

Other businesses or private persons may liquidate gold because they see something more attractive – perhaps property or a business deal, or more likely, because they have to pay down debt.  Granted, right now business investment and equipment aquisition is down, as well as hiring, but these are just some reasons normal, every-day people or businesses, including those who think gold is the way to go, would sell gold.

Others just play the market, selling gold when they think it’s near the top of it’s current trading range, and buying it at the bottom of what they define as it’s trading range. 

Gold miners have to sell to pay salaries and other extraction costs – there’s a supply that will always be selling a good protion of their holdings.  Banks may sell to buy dollars, especially right now when dollar outflows from the US have collapsed.  In Costa Rica, where I live, the bank tries to maintain the dollar within a certain range of the local currency, the colon.  Right now, they are facing a dollar-shortage (investment and tourism is down), so the colone is expected to have strong devaluation pressure from the dollar.  If we were a country that had gold reserves (which I am 100% certain that we don’t!), we could sell gold to raise dollars and keep our currency from depreciating.   I am sure the geniuses at the central bank here will instead print more colones and use them to buy the dollars they think they need.

 In short, the market is full of all sorts of different players facing different short-term and long-term pressures and goals.  If it didn’t, there wouldn’t be much of a market for anything at all.

 

  • Mon, Jan 05, 2009 - 08:34pm

    #8

    Dogs_In_A_Pile

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    Re: Who’s selling gold?

Couple of interesting articles from Seeking Alpha.com posted previously by pinecarr.  There’s some great topical discussion in the following thread:  https://www.peakprosperity.com/forum/gulf-countries-including-saudi-arabia-approve-new-currency/11066

Apologies if duped here. 

Is it too far fetched to see a direct line being drawn from oil to gold and the oil to dollar line slowly being erased?  Some pretty serious implications if oil is priced by gold instead of the dollar.  Can the end of the dollar as the reserve currency be too far behind?  Anyone else think this is yet another domino to fall signifying the end of the dollar?

I think it is an interesting premise that ‘someone’ is selling gold and accepting fiat currencies in exchange.  I would have to go with SamLinder’s assessment that "they are all very dumb" over "they know something we don’t know".  As long as they’re selling it, I’m buying it.

 Seems like it’s more important to ask "Who’s buying gold?" 

________________________________________________________________ 

"Everyone knows something you do not.  Learn from them."     Sifu Bruce Lee

________________________________________________________________

 

Will the New GCC Single Currency Include Gold?

by: Peter Cooper December 31, 2008 | http://seekingalpha.com/article/112731-will-the-new-gcc-single-currency-include-gold

 

Gulf Cooperation Council leaders yesterday concluded their 29th annual summit meeting in Muscat, Oman with a final approval for the creation of a single currency for the six-nation economic bloc, still targeted for 2010.

Saudi Arabia is the largest economy in the GCC and boasts substantial gold reserves. But whether gold will be included in the currency basket has not yet been decided.

Golden opportunity

GCC assistant secretary-general Mohammad Al Mazroui told Gulf News: ‘We first have to decide on the location of the Central Bank, then the Central Bank and Monetary Council will have to decide on the gold reserves for the Central Bank’.

The creation of the GCC single currency – likely to be known as the Khaleeji which means Gulf in Arabic – is a major gold event for two reasons.

First, the breaking of their dollar pegs by the Gulf Arab nations is clearly dollar negative. Secondly, any inclusion of gold either as a part of the monetary basket, or in the reserves of the new GCC Central Bank will create additional demand for the precious metal.

2009 deadline

The project is gathering pace, and no lesser a figure than Saudi Arabia’s King Abdullah has directed that GCC economic integration committees speed up their work and complete the whole exercise by September 2009.

It is only a couple of months since a group of Saudi businessmen allegedly bought $3.5 billion worth of gold, believed to be the largest ever single transaction for the precious metal. Perhaps in 2009 it will be gold rather than local currencies which become of interest to speculators about monetary reform in the GCC.

Gulf countries are keen to break away from the link with the US dollar because it ties them to inappropriate monetary policies that exaggerate the boom-to-bust cycle in their economies.

From "The Gold to Oil Ratio Does Matter" http://seekingalpha.com/article/112653-the-gold-to-oil-ratio-does-matter

Seasonally, oil (USO) is extremely weak from October through December. In 2008 oil started October at about $100 and ended December around $40 or around a monstrous 60% decline. Oil is strongest seasonally from July through September with the strongest individual months being January and August. Oil’s 200dma sits right around $100, appears to have hit around its bottom and the 200dma is exerting a gravitational like effect pulling oil prices up.

By contrast gold’s 200dma is at about $860 per ounce. Gold (GLD) has recently passed through its strongest seasonal period from September to December. It maintains the uptrend from January to March, is asleep the rest of the year except for a strong rally in May. While seasonality is helpful, it does not etch the future in bullion and this year has been different.

The recent financial turmoil has caused tremendous technical damage to gold almost as if it was done intentionally to stunt its bull market during all of the financial carnage. GATA asserts that when the news is really bad gold goes down. Well, the last half of 2008, when gold should have performed well seasonally, it swooned from over $1,000 per ounce to the $680’s while Lehman Brothers (LEHMQ.PK) evaporated, Fannie (FNM) and Freddie (FRE) were nationalized and bailouts were served every night on the news. Such suppression has only wound the spring that much tighter.

 

 

It is important to keep in mind that both of these commodities are still in strong secular bull markets. The FRN$ is in a strong secular bear market as is the DOW and real estate. The Gold/Oil ratio is now about 23 barrels of oil per ounce of gold. The 200dma is about 9.5 and the historic average is around 15.

The extremes happened in 1974, 1986 and 1988 as the ratio approached 30 and 1977, 2001, 2008 at about 8 and 2006 at around 6. For these relative prices to return to more normal ratios something is going to give. Oil is either going to go up, gold is going to go down or to move into some sneaky calculus the rate of oil’s rise will be faster than gold’s. The silver (SLV) to oil ratio is not nearly as extreme as gold to oil but silver will most likely follow gold, either up or down, at a faster rate of change.

This is where geo-politics arrives. Are the oil producers willing to take so little value in exchange for their precious black gold? With Peak Oil (mp3) asserting itself the oil producers should hold the bargaining power. The latest IEA numbers indicate an extremely serious steeper than expected 9.1% decline rate. Yes, the Canadian Oil Trusts will rise in value as a safe, secure and stable source of oil. But perhaps the oil exporters should sit on their oil and let the importers roil and writhe in pain as E. M. Forster’s 1909 essay The Machine Stops is played out. After all, a barrel in the future will be worth more than a barrel today. Obviously, the collapse will not be televised.

At all times and in all circumstances gold remains money. It is the most powerful currency in the world. Oil is the world’s primary energy source which is why the gold to oil ratio is important. Gold is the most effective tool humans have to perform mental calculations of value. By analogy it is the tool used to determine how many calories an apple provides and how many calories it takes to collect and process the apple so it can be eaten.

Producing gold is essentially converting energy into bullion. How many calories go into producing a one ounce gold coin? In some cases to produce a single ounce hundreds of tons of rock are moved. Ultimately, money is about energy. To make it personal, how much value should you put on that nice steak dinner, bottle of water from Fiji or 3,000 mile Ceaser salad? Well, think through the supply chain and how much energy the good or service represents.

The world has a very serious problem. Because it has used a fiat currency with no definition or basis in reality for nearly 100 years and because oil production was constantly increasing during that time the effects of unwise capital investment were masked. Energy Return On Energy Invested (EROEI) calculations were not even performed. A fiat currency attempts to sustain the unsustainable while a commodity-based currency employs the strict laws of reality to ensure the unsustainable is not encouraged.

In other words, no one knew or calculated either how many calories the apple supplied or how many calories it took to procure and process the apple. The entire infrastructure of the entire world was built using mental calculations of value based on a derivative illusion. As natural and economic law assert reality and gold begins circulating as currency in ordinary daily transactions the distortions will be removed and the gross misallocations of capital will be revealed. I wonder what such a world will look like? Will The Machine Stop?

Disclosures: Long physical gold and no position in GLD, SLV

  • Mon, Jan 05, 2009 - 10:23pm

    #9
    SamLinder

    SamLinder

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    Re: Who’s selling gold?

[quote=Lisa G]

Sam, I am definitely not enlightened but I do see one flaw in your otherwise logical question – you assume that fiat currency (or just the dollar) will be worthless at some point, and I assume you think that point will be in our lifetimes. If you ask around you will find that most people, even those who know what fiat currency is, will not agree with you. I know that the bullion dealer I deal with laughs off the idea, he has been in the gold biz for many years but he’s not a "gold bug." In fact, he thinks that the premiums on physical gold right now are ridiculous and is quite certain they will come down this year. Do I believe the dollar is heading for the gutter? Yes. Do I know that? No. There are many intelligent people out there, some of whom are selling gold, who believe the dollar and other fiat currencies will be with us for many years to come and in fact, even believe the dollar is going to prove to be the strongest one out there. ….. and believe it or not, gold is heading down.

[/quote]

[quote=Patrick Brown]

In short, the market is full of all sorts of different players facing
different short-term and long-term pressures and goals.  If it didn’t,
there wouldn’t be much of a market for anything at all.

[/quote] 

Patrick – I certainly can understand the short term need for fiat
currency to fulfill immediate obligations but my underlying questions
regarding buying/selling gold still remain for the long term. See below.

 

Lisa – Your points are valid and only serve to highlight my confusion on the matter.

Everywhere I turn these days, I see financial sites pushing people to buy gold as if it is the only salvation left on the planet. After a while, I begin to think – wait a minute. If everyone is buying gold, who’s selling it – and why? Because, if they’re selling gold, they’re taking in some form of paper currency which myriad "economists" on these various sites are swearing up and down will be worthless in short order – perhaps even this year. Are they all wrong?

In years past, whenever things around the world have gotten tense (war, recession, etc.), gold has always spiked as a "safe haven". However, this time gold (which slowly increased in price in 2008) seems not to be responding as usual. It almost smacks of "manipulation" in some way although I wouldn’t have the faintest idea of how to prove that.

Look at the massive dumping of FRN’s into our American economy – and the incoming administration is prepared to dump upwards of $1 trillion more! From where I sit, that’s got to lead to inflation, if not hyper-inflation, in short order. Thus, making all those dollars worth much less (if not worthless). Why hasn’t gold spiked in relationship to that? It always has in the past.

The fact that your bullion dealer "…thinks that the premiums on physical gold right now are ridiculous and is quite certain they will come down this year." gives me further concern. With the world economy in the tank, war in the middle east, smaller wars all over the world, and world economies projected to get worse, why would the price of gold come down? ("…and believe it or not, gold is heading down.")

Do you see where this train of thought is going? The world no longer seems to be operating as one would expect. Am I the only one that finds this state of affairs somewhat peculiar?

  • Mon, Jan 05, 2009 - 10:55pm

    #10
    Fogle

    Fogle

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    Don’t forget deflation

Maybe it has to do with this scenario:

Banks are not lending. This means deleveraging,
because companies and banks must liquidate to pay of loans. The money
supply contracts. This is because the fractional banking was our
printing press. Loans are new money. No loans, no new money. Loans
payed of is money contraction.

This means deflation. Money get worth more per unit.
Prices fall, also gold.

What if major players are selling gold now just to
buy back later. Or selling short.

In a normal recession there is not as much
deleveraging. In a depression there is. The inflation comes after that.  

Just a thought. 

 

On the bright side, maybe we have another great
buying opportunity later this year.

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