Guest Post: "The Geopolitics of Gold" by Alasdair Macleod

Our friend, Alasdair, actually wrote and released this article last week and it received considerable attention. We never had a chance to discuss it here in Turdville, though, so with Alasdair's permission I thought I'd reprint it today.

Alasdair is spot on with this analysis and he summarizes the main issue with this sentence: "The outcome is a choice: the West will either have to stop intervening and allow gold to find a level where physical and derivative markets interact properly with each other, or capital markets in the West will face a growing crisis likely to spill over into other markets."

The Geo-Politics of Gold, by Alasdair Macleod of GoldMoney

Western central banks have got themselves horribly wrong-footed as a result of not adjusting their anti-gold policies to allow for the realities of Asian gold demand. Though their dealings are shrouded in secrecy, there is compelling evidence that much – if not most – of Western central bank gold has been quietly sold over the last three decades.
More recently all members of the Shanghai Cooperation Organisation, a common security and trading bloc led by Russia and China and incorporating the bulk of Asia’s land mass, have been accumulating gold. Between current SCO and future members (India, Iran, Afghanistan, Mongolia, Belarus and Sri Lanka), with their citizens numbering over 3 billion people, they have together cornered the global market for physical supply, without even taking account of demand from the rest of South East Asia’s gold-hungry population.
The result is that gold markets are now failing to clear. The outcome is a choice: the West will either have to stop intervening and allow gold to find a level where physical and derivative markets interact properly with each other, or capital markets in the West will face a growing crisis likely to spill over into other markets. While these outcomes were always going to be a choice to be made at some time in the future, the disconnection between physical gold and derivatives has become so great that it is now an immediate concern.
At the government level it is a geopolitical clash of the titans. Russia and China are almost certainly aware of the lack of gold in Western central bank vaults: they are fully capable of thorough due-diligence in this respect. They have so far been careful not to disrupt capital markets because it has not been in their interests to do so; however, the current hiatus in gold markets is almost certain to modify their view.
Fundamental to all this is their attitude to Western currencies: the yen is now collapsing, the euro area is in deep trouble and the US economy is at very best stagnating. Until now, payment for Russian energy and Chinese goods in foreign currencies has been welcomed, because it has allowed the Russian and Chinese elites and middle classes to accumulate wealth. This balance of interests can only be maintained for so long as Russian and Chinese governments and their citizens can hedge foreign currency risks through an offsetting accumulation of foreign-owned gold.
This is no longer the case, because to all intents and purposes western capital markets are cleaned out of physical supplies, and the ability of the Western central banks to suppress gold prices appears to be ending. And with the West’s financial system no longer able to deliver their most prized commodity, hitherto passive attitudes in Asia to Western currencies are likely to be reassessed.
The gold question has become central to east-west trade. The sensible approach for Western central banks is to defuse the problems arising by taking positive steps to ensure that gold markets operate properly. This is conceptually difficult, because the most likely result, a higher gold price, would risk undermining confidence in the major currencies and most probably damage the bullion banks in London.
Despite these difficulties, realities have to be faced.

http://www.goldmoney.com/?gmrefcode=tfmetals

120 Comments

Tabberto's picture

ERM

With the greatest respect Roche you are both incorrect and talking nonsense - AGAIN picking holes for purposes of pure pedantry/self-aggrandisement. 400 oz bars are not in short supply...wtf, are you a warehouseman?  What reliable measure makes you confidently say such a thing?!

From wiki:

A market clearing price is the price of goods or a service at which quantity supplied is equal to quantity demanded, also called the equilibrium price. Another market clearing price may be a price below equilibrium price to stimulate demand.[citation needed]

In simple terms, this means that markets tend to move towards prices which balance the quantity supplied and the quantity demanded, such that the market will eventually be cleared of all surpluses and shortages (excess supply and demand). The first version assumes that this process occurs instantaneously.

If you think that the Gold market is clearing properly you are clearly looking at a different market to the rest of us! Go get a real picture of the 400oz bar market then and come back - oh whoops you can't do taht because said information is not available.  Maybe you could use GOFO ho-ho!?  Quantity supplied is equal to quantity demanded is it?  Necessarily a Gold bullion market which involves bullion bank leverage and NO information about inventory levels, leasing swapping etc is NOT clearing properly - otherwise all this info would be available.  Ugh.

Price discovery mechanism working well?  Clearing is just a different word for genuine price discovery. 400oz bar market is being run as a scam/scheme, as you know, clearing has been highly questionable for the entirety of this bull market.  It is a fact that the swiss banks are stopping you from withdrawing big bars from custody, only allowing transfer.  Not just kilo bars.  Just to knock this on the head PROPERLY, it also merits comment that Central Bank reserves (held in your preferred form) now have to be bought in the open market in order to become available for delivery, let alone the ongoing and rising shanghai premiums etc.  Ugh, I hate having to tag you like Victor, wouldn't be necessary were there not the same notion of superiority and nibbling at Turdville contributors.  At least if you are going to do it make it a question rather than spouting utter nonsense as though it were factual.

Turd Ferguson's picture

Wow Tabberto

MODERATOR

Great stuff.

Response to: ERM
¤'s picture

H. Roark >>> 1984...Animal Farm and Brave New World

This story (about NSDA/PRISM) as well as yesterday's Verizon will fade away into the sunset of normalcy and accepted as a given. I think more stories about banking spying and online spying will emerge shortly. I'm pretty sure this  recent revelation isn't a news breaking type of thing but more of a planned announcement by them basically telling us....'This is how it is" 

We're in a bad spot with all of this govt. microscoping of everything in the name of homeland security and the eternal fight against one enemy or another. It gives them a reason and it keeps everyone in a state of fear on some level in the overall general populace.

Hey...I'm all for staying safe and not letting someone from somewhere blow up something or causing mayhem..who isn't? But where does it stop?

It doesn't...because it's only the beginning.

We're on the doorstep of many things...including the skewing of market data and the steering that goes on that we see everyday. I'm not so sure we're near the end game of anything we think or some hope we might be.

A 1954 TV Production of George Orwell's novel "1984" A story about government surveillance and mind control where independent thinking and individualism is forbidden.

Watch the first minute and you might watch the whole thing...

S Roche's picture

@Tabberto

Bullionvault.

Edit: Correction - Goldmoney: Their business is based on 400 oz bars. 

Just the facts. I am getting sick of what I've come to view as weak-sisters in the gold commentariat. There are plenty of good reasons to be buying gold now, yet spouting nonsense like Alasdair is in this piece actually detracts from the credibility of the blogs discussing/promoting gold. TF Metals is in a unique position to promote rational, factual, discussion. Why not?

Here is James Turk: 

“The problem retail buyers are finding is that the stock of small bars and coins quickly flew off the shelves, so premiums have been rising because the fabricators have not been able to produce enough new supply to meet demand,” said Turk. The situation has benefited GoldMoney because it sells individual interests in large gold bars, he said.

http://www.marketwatch.com/story/what-bullion-dealers-are-saying-about-gold-demand-2013-05-03?pagenumber=2

Some references supporting all your claims contradicting what I am saying? You are making some pretty big claims.

Edit: I just re-read what you wrote. Shanghai premiums? I am steering the discussion towards 400 oz bars, and you are talking about 1kg bars. This inter-changeable discussion is the problem. The wholesale market is 400 oz, there are no shortages. Kilo bars are manufactured, there are manufacturing shortages, and yet many are still confused because commentators use the two completely different gold markets as if they were the same. They are not.

This isn't pedantry, this is really basic stuff when discussing gold.

¤'s picture

S Roche

With all due respect...the below comment is a broad blanket on a C & P of an article by someone else and not written by TF.

Imho...it merely gives an alternative view and was put up for discussion in whatever way it flows on here.

"TF Metals is in a unique position to promote rational, factual, discussion. Why not?"

Who is to determine what rational or factual really is in these markets when it varies within the mind of each individual or their daily personal or business experiences?

The beauty of the site and this thread is that the give and take one way or another is allowed. I'm pretty sure if the site or the entire content of it was irrational or not factual you wouldn't be here unless you were a dedicated skeptic.

I don't think that's the case and I like your input and perspective on here and I hope it continues. yes

S Roche's picture

@DPH

Thanks. I believe in the wisdom of crowds and I really like the hive-mind at Turdville, I have always been keen to see fact-based discussions and my edited point above, about the different markets that are 400 oz (wholesale) and 1kg (retail, supplied by wholesalers), is the one fact I am trying to see established here. Rational was a stretch wink

¤'s picture

S Roche

yes

Tabberto's picture

If you want

to deal with the erroneous and speculative nature of what you said then fine.  Otherwise I will keep at it.  This is a discussion about CLEARING.  You said the market is clearing fine and that Macleod is talking nonsense.  Be a big boy and don't try and change the subject.  You stay stick to facts - I say EXACTLY.   If you are going to pick at contributors who are willing to put their necks above the parapet you'd better expect to be called out.

Getting hold of a 400oz bar does not mean that the price discovery mechanism (aka clearing) of the market is working well.  if you want to discuss this fine, otherwise pipe it and stop being such a nark.

Btw... 400oz and 1 kilo are not the same.  Should I call you sherlock?  The Chinese don't do 400 oz bars but then being the 'expert' I'm sure you knew that didn't you roche...?  The Chinese consider (quite rightly) the 400 oz bar to be anomalous, irrelevant and good for melting as they represent collateral for a fractionalised fiat system, not as safe harbour or money.

Where are my big claims, do elaborate, this is getting interesting now.

Tabberto's picture

Actually scratch that, you're only going to carry on needling

lets start with SRoche commentary for once (fact based ONLY) - we all like hearing both sides of the coin

on:

It is nonsense to say that Gold markets are now failing to clear. My knowledge of the 400 oz wholesale bar market explains why.

 

S Roche's picture

@ Tab

Getting hold of a 400oz bar does not mean that the price discovery mechanism (aka clearing) of the market is working well.

Wha? u serious? The market standard is 400 oz gold bars. They are available.

The Chinese consider (quite rightly) the 400 oz bar to be anomalous, irrelevant and good for melting as they represent collateral for a fractionalised fiat system, not as safe harbour or money

Someone from China tell you this? Might be news to London.

It is a fact that the swiss banks are stopping you from withdrawing big bars from custody. Rilly? Source?

 clearing has been highly questionable for the entirety of this bull market. Ditto

I gave you James Turk for the insight into gold availability at the wholesale level. No comment?

Let's see if we can keep this polite.

Edit: To elaborate about James Turk's comments cited above: James is an excellent promoter. His business, Goldmoney, sells interests in 400 oz gold bars therefore he is in an excellent position to comment on gold availability at the wholesale level. Given all his past pronouncements on gold he would be the first to let us all know if Goldmoney were having trouble sourcing 400 oz gold bars. Instead, he is citing his company's ability to source stock as a reason his business is benefiting from the present shortage of manufactured product, ie small bars and coins.

Tabberto's picture

No.

clearing properly means supply and demand are meeting, properly.  If you believe that is the case then fine, you clearly refuse to 'get' the point about you claiming 'clearing' is only relevant to the wholesale market.  The Gold market clearing mechanism itself is corrupted.

Yes this information about the Chinese market is pretty well known by those who speak to the Chinese direct.  LBMA good delivery isn't going to rule the price discovery mechanism forever.

I don't need to source my swiss bank comment, it is first hand.  They are restricting delivery of anything above $100,000 now, in line with cash deposits.

Sadly I fear your 'with all due respect but this is nonsense' failed the civility test.

EDIT:  Still waiting for your fact based commentary disproving Macleod's thesis (as against lobbing rocks with poor aim)

S Roche's picture

@ Tab

There is a manufacturing bottle neck. It will pass because the wholesale market is still clearing. 

Though the information about the Chinese may be pretty well known, as you say, I would still like to read about it first hand, source?

You may well be right that LBMA good delivery is destined to be overtaken in the future, but at the moment, here and now, they do rule price discovery and their market standard is the 400 oz gold bar.  That is my point, the status quo has not broken down because gold is restricted at the retail level, the gold market is functioning. Same as 2011, retail inventories will take weeks or months to replenish. If more gold is needed, the price will rise.

I call you on your Swiss bank comment, prove it. I just don't believe you. Anyone can buy Swiss gold today and take it out of the country, they just have to declare it, no limit. Switzerland is one of the world's largest gold refiners and suppliers as well as depositories...there is not one news story that I can find that supports your claim, which would be a huge story. Please provide a source.

Nonsense is a blunt word, but appropriate. I regard it as civil, it is not like calling someone Victor for instance!  

Edit: Sorry to be slow but I was looking for sources to support your claims. Also, in my comment above I have added a bit of detail as to why James Turk can tell us about the availability of gold at the wholesale level.

Edit: I found this might help you: http://www.economicpolicyjournal.com/2013/04/serious-swiss-bank-refuses-to-give.html Note the comments. As to any restrictions taking gold out of Switzerland I relied on IAATA. ABN AMRO did not default, contrary to what Andrew Maguire has been saying, quoting John Embry without checking his facts. They wanted to close out their unallocated accounts to reduce the liability on their books, which should be gold positive as all those unallocated account holders might get smart and buy physical and take delivery. I'll find the link for you to this claim of mine.

Here you go, Bron Suchecki covered it well: http://goldchat.blogspot.com.au/2013/04/chill-out-dudes.html

You'll also find this relevant to this discussion http://goldchat.blogspot.com.au/2013/05/not-much-of-case.html

Tabberto's picture

Roche You

are right that the swiss story is important.  Most people in markets are however a lot less interested in all this than you seem to imagine which is making me chuckle.  I deal with market participants every day and they have absolutely no interest in this story EVEN WHEN I recount it to them!  Gold and Silver are simply not of interest beyond the rarified circles of Goldbugs and traders.

Even when the manufacturing bottleneck ends (and yes woo-woo I too had noticed that this is where the bottleneck is!) the market will still not be CLEARING properly.  The market is far away from matching supply and demand, surely you can see that, if the market wasn't opaque, fractionalised and esoteric you think that the matching equilibrium gold price is $1385? Come on, I know you don't think that, hence why I called you out on your ungenerous and pedantic sniping.  The Chinese already have hundreds of Billions of Dollars worth of Gold and Silver 'backed' bank accounts and those Chinese banks haven't bought an ounce of physical to cover that - they are simply 1:1 through the futures market.  This information comes from China, not second hand.  All of these factors (and this is just one I could go on for hours) add to the issue of clearing overall, indeed the interface between futures and cash Gold also affect the markets ability to clear efficiently as this affects the 'equilibrium' too.

The swiss story is no different really to other such stories that have had a wide distribution over the last 6 months or so.  I am not giving you my friend's name, but he is a seriously rich London hedge fund manager, and having repeatedly and increasingly frantically discussed his metals holdings with him over the past 2 years I told him to shift the whole lot out of the bank (one of the big swiss LBMA members) and put it into private vaulting outside of their shop.  He called up the bank and they told him:

We have new rules: you can take out up to $100,000 in physical (same limit as with cash) - or you can sell, or you can transfer to another LBMA member bank.  

I will speak to him again last week but we have been having ongoing conversations about this, as he is still unsure how to proceed seeing as he will get the same chat from another LBMA member after a month or so delay in moving the metal (yeah really).  I have already suggested he sell and buy from a UK bullion dealer simultaneously but he hasn't moved yet.

EDIT:  hahaha again you have a crack at Maguire for referring to someone else's story, bee lodged in bonnet? - The ABN AMRO story does not interest me and I have no idea whether they are struggling or not with their book.  Just because Bron says something does not make it so, especially as he is prone to similar bouts of pedantry and high-horsing!  

Tabberto's picture

Functioning it is, you say.....

- and therein lies the rub.  Functioning maybe, clearing fairly and finding an equilibrium price between supply and demand, no.  This is why I am on you about this - its an opinion .  You have yours and Macleod his, you have no place describing what he writes as 'nonsense' - you don't think perhaps seeing as he sees James Turk every week and works for him that he may be aware of the 400 oz bar point at Goldmoney?  

The fact you can get a 400 oz bar means just that, you can get a 400 oz bar - its relationship to real price discovery is a whole different subject, related but tangential.  Sure, the equity market is clearing trades too on the most basic level, and bully for it, doesn't mean that there aren't severe problems with the price discovery mechanism there now does it?

Enough, if you cant see this I put down my pen for the time being for fear of disappearing down a whirlpool argument.

S Roche's picture

@ Tab

Just one source? Nothing? OK.

I included the link for you re Swiss gold delivery because it is the same story from 2010...it is about money laundering, not gold delivery restrictions. Your friend runs a major hedge fund and can't transfer his gold from one account/country to another...rilly? Hint, loco swap. No charge for that one. As to the claim that the LBMA banks refuse to deliver physical above $100,000 I think that is just nonsense. He may have told you that, but it is nonsense all the same.

Re the price...when all the Macro-Tourists have sold (and by that I mean all the hedge funds and momentum chasers who bought GLD for no other reason than it was going up, and are now short gold/GLD, again, for no other reason than it is going down) as well as those who believe that sustainable US growth will see the Fed taper...when they have all sold themselves out and are proven wrong, (ref Japan), I expect to see a violent rebound, just like 1976. I have been following the effect Structured Products had on the price decline in gold, I have a feeling that the same thing happened in reverse in 2011. These to me are the reasons the gold price is where it is today. Sure, large players and sovereigns give it a nudge, (both ways mind you), same as oil.

I thought I covered the point that I wasn't being pedantic, the wholesale market is 400 oz, no shortages. Retail has manufacturing bottle-necks causing shortages. Is that pedantic? Ungenerous? Sniping? Excuse me, they are facts.

Edit: Re your comment above, the world gold market is predominantly based on 400 oz bars. Let's just ignore that for the sake of the argument, as Alasdair has? No.

Tabberto's picture

snore

CLEARING: Clearing is necessary for the matching of all buy and sell orders in the market. It provides smoother and more efficienticon1.png markets, as parties can make transfers to the clearing corporation, rather than to each individual party with whom they have transacted.

erm.... matching all buy and sell orders for the whole of the market (what Macleod was getting at which is the whole point of you going round like a dog chasing its tail) - they are all clearing at the same level are they?  Obviously the clearing mechanism for Loco london is still operational - but the OVERALL gold/silver markets are not matching or clearing efficiently - are they?  Loco London/Shanghai Premiums/Basis/Co-Basis all say that YOU are wrong, not Macleod.  Also note your lack of comment about Macleod working FOR Goldmoney teehee.

Sources?  Not one?  These are my own sources, not everyone relies on secondary information old bean.  I speak to China about metals regularly, unlike some...

Your friend runs a major hedge fund and can't transfer his gold from one account/country to another...rilly?

when did i say he wanted to transfer his gold?  can you not read?  He wanted to remove it and take it to a private vaulting facility in Switzerland outside of 'loco' duh.  As for a 'loco swap', you simply haven't understood what I was saying, not a surprise though.  They are his numbered bars, and whether the swiss claim it is for money laundering or not, this IS what he was told - 3 weeks ago.  

Your comment about my friend 'making it up' is not a surprise - apparently everyone who isn't a screwtaper 'makes things up' - you think there is no manipulation (or little as per the above) so you think that those who say otherwise 'make things up' and do not use 'facts', makes me feel better actually as your responses are so trite and banal its like sticking a blue light out and attracting in the insects.

....These (mainstream arguments) to me are the reasons the gold price is where it is today.

hahaha well fair enough but wtf you are doing here then has me mystified!

I thought I covered the point that I wasn't being pedantic, the wholesale market is 400 oz, no shortages. Retail has manufacturing bottle-necks causing shortages.

Well at least you are now being clear - you believe that clearing - the market finding an equilibrium (fair and unmanaged presumably) between supply and demand is happening under the present price discovery mechanism.  Well, if you live in the Twilight Zone where banks don't and never have brazenly manipulated the precious metals market then fair play, which, of course, is totally ridiculous to anyone who has even the slightest knowledge of history.  Maybe with your explanation of why the metals are pricing where they are you could help the CFTC close its Silver manipulation case seeing as there is no big issue? - such a waste of taxpayer money, especially when some accentuate this by spouting such nonsense about the market failing to clear properly/fairly.

FIN

S Roche's picture

@Tab

Well, now you're being silly.

Here is the biggest manipulation of the gold price in this whole bull market, not only is it widely known but I have written proof: http://en.wikipedia.org/wiki/Washington_Agreement_on_Gold

Cuts both ways. With all those opposing gold (and don't try and paint me as some easy target for your silly notions) it can't be where it is without help. Gold has sovereign supporters too, and they are not idle.

Anyhoo, thanks for the chat. I asked you for sources, you provided none. I'm outta here.

Turd Ferguson's picture

Well, that was fun

MODERATOR

Thanks, guys!

coachbuy's picture

sell tiffany and co jewelry

sell tiffany and co jewelry
| stores sell tiffany jewelry
| sell tiffany and co jewelry
| tiffany silver jewelry
| cheap tiffany and co jewelry

tiffany jewelry outlet

tiffany and co outlet

tiffany outlet online

tiffany outlet store

tiffany outlet locations

[b][url=http://www.tiffanycooutleton.com/]sell tiffany and co jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]stores sell tiffany jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]sell tiffany and co jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]tiffany silver jewelry[/url][/b]
| [b]cheap tiffany and co jewelry[/b]
[b][url=http://www.tiffanycooutleton.com/]sell tiffany and co jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]stores sell tiffany jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]sell tiffany and co jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]tiffany silver jewelry[/url][/b]
| [b][url=http://www.tiffanycooutleton.com/]cheap tiffany and co jewelry[/url][/b]
[b][url=http://www.tiffanycooutleton.com/]tiffany jewelry outlet[/url][/b]
[b][url=http://www.tiffanycooutleton.com/]tiffany and co outlet[/url][/b]
[b][url=http://www.tiffanycooutleton.com/]tiffany outlet online[/url][/b]
[b]tiffany outlet store[/b]
[b][url=http://www.tiffanycooutleton.com/]tiffany outlet locations[/url][/b]

coachbuy's picture

sell tiffany and co jewelry

Syndicate contentComments for "Guest Post: "The Geopolitics of Gold" by Alasdair Macleod"