With Local Gold Inventories Depleted, Panicking German
Dealers Stage Run On Krugerrands
Submitted by Tyler
Durden on 05/16/2010
Last week we noted that several prominent Austrian and German gold
dealers had run out of inventory and were no longer transacting with a
European population that has suddenly discovered gold religion. As a
result, dealers are now focusing procurement efforst outside of Europe,
with South Africa receiving the brunt of Europe's panic for
physical precious metals. As the FT reports, "At the Rand
refinery in South Africa, the phone has not stopped ringing this week."
Just imagine what will happen when the gold bug goes airborne and jumps
across the Atlantic...
More
from the Financial Times:
Panicking German dealers and banks have been desperate to get their
hands on krugerrands, the world's most popular gold coin.
"We have some extraordinary sales to German
customers," says Deborah Thomson, the Rand treasurer. The
refinery, which usually sells 2,000 coins to each customer at a time,
says that last week it received an order from one German bank for
30,000 coins. Another bank requested 15,000 coins.
Frank Ziegler, head of precious metals at BayernLB, one of Germany's
largest wholesale suppliers of gold, says: "People are buying
krugerrands like crazy." The frenzy pushed gold prices to a
nominal high of $1,248.95 a troy ounce yesterday while the euro price
surged through €1,000 an ounce for the first time. Adjusted for
inflation, however, gold prices are still a long way from their
all-time high above $2,300 an ounce in 1980.
Although coins account for a small part of the market, they are one of
the best indicators of investor sentiment towards the precious metal.
And right now gold is in massive demand from investors who see it as
the ultimate safe haven at a time of market turmoil and as one of the
best hedges against a possible resurgence of inflation.
Other important factors are supporting prices: institutional investors
are pouring billions into bullion-backed exchange traded funds;
central banks have reversed 20 years of selling gold (and some,
including the Chinese central bank, are buying it); and mine gold
supply growth has stagnated.
In focus are also the big physical and otherwise gold ETFs which have
recently received much notoriety over the likeilhood they are hollow
ponzi scams which will shut down operations the second there is even a
whiff of a gold run on their holdings.
There is no indication that Germans are ready to stop buying.
Panicked by the possible inflationary implications of this week's
€750bn eurozone bail-out, they have been snapping up gold coins and
small bars at a faster rate than in the aftermath of the Lehman
Brothers bankruptcy.
The European Central Bank says its government bond purchases will be
"sterilised" by operations to remove inflation risks. But
Martin Siegel, manager of Westgold, a dealer of gold in Frankfurt,
says people "are not as dumb as economists. They believe there is
going to be inflation and are buying gold to protect
themselves"."
German investors are notoriously wary about inflation. While few are
old enough to remember the hyperinflation that wrecked Germany during
the Weimar Republic in the 1920s, the episode remains etched into the
national psyche: newsreel from the period has been running on the news
in recent days.
The appetite for coins has been so intense that shortages are
developing. "In the European market there is a shortage of
krugerrands," says Mr Ziegler. As a result, the premium paid for
krugerrands in the secondary market has risen from about 2 per cent to
6-8 per cent.
The interest has not been confined to coins and bars. ETFs, which hold
physical gold and issue shares to investors, have also seen large
inflows.
The world's largest, the SPDR Gold Trust, has increased its
holdings by 50.5 tonnes in the past two weeks, more than in the first
four months of the year. Other funds have also been building their
positions. Gijsbert Groenewegen, at Silver Arrow Capital, a New
York-based precious metals hedge fund, says investors have been
flooding into his fund "in swarms" in the past week.
Analysts and traders believe gold could rise even higher in the short
term.
Philip Klapwijk, executive chairman of GFMS, the precious
metals consultancy, believes that the current upward trend "could
run a bit". Edel Tully, precious metals analyst at UBS, forecasts
the gold price will hit $1,300 an ounce in the next month.
One bullish factor is the lack of physical gold, or scrap, being sold,
despite the high prices. In Asia, where the gold market is especially
sensitive to price, a surge in prices usually leads people to sell
their old gold for scrap, boosting supply.
But that is not really happening yet. Afshin Nabavi, head of trading
and physical sales at MKS Finance, a gold refining and trading company
in Geneva, says: "Sales of scrap have picked up but not that
much."
Even if gold is indeed entering a bubble mania phase, the mania in
PMs is far less exuberant than in stocks, with the stock market
multiples larger than that of gold and silver, and with far greater
retail and speculative participation. Should there be an unwind, we
expect stock prices to drop more and faster than those of PM products.
h/t Slim Beleggen |
