Wednesday, November 15, 2006

The "Peoples Central Bank"? Now We're Talkin'

Metalspace has some interesting comments on the future of gold, and most particularly how the dehedging might affect it.

Here are some extracts from their post:

"Investment demand is likely to continue to increase significantly through bullion-backed securities (Exchange Traded Funds ETFs) and through Comex and Tocom. ETFs are now acting as a 'Peoples Central Bank,' buying gold, thereby taking gold out of the system and countering Official Sector sales. The total investment in ETFs, bench-marked against Central Bank holdings, now ranks No. 11 – at 585 tonnes."

PCB
[Thanks to CNN for the original image that I tweaked.]

I really, really like that phrase "Peoples Central Bank." And he's not talking about China. He's paralleling my own catchphrase: "You can take gold out of the standard, but you can't take the standard out of gold." He's speaking of a People's Jury of Monetary Policy. That's exactly what we need. I could have said, "You can take power away from the people, but you can't destroy people power."

Here's some more:

"For the record, Credit Suisse has dropped their gold price forecast (made in May) for 4Q06 from $690 to $630 (which is obvious since half the quarter is now gone), and from $700 to $665 for 2007, from $725 to $700 for 2008. and from $767 to $751 for 2009. But for 2010, they kept the forecast at $800."

Did you say "$800"?

And this:

"Credit Suisse is reporting that goldminer producers have de-hedged 10.24 million ounces (318 tonnes) YTD, and that already is twice greater than the 131 tonnes de-hedged for the whole of 2005. That statement tells anybody who can read that gold mining companies expect the price to ramp up from here."

I agree with the gold mining companies.

He also has some astute comments about the conjuncture of dehedging requirements, declining mine quality, and -- counterintuitively -- an increase in the gold price, and what it might be doing to those gold producing companies who didn't believe in this turn of events a few years ago.

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