Saturday, February 25, 2012

25/02/2012: Some interesting recent points on Gold

GoldCore guys have an excellent visualisation of some core facts about gold as a vehicle for store of value - a short video certainly worth watching.

You know I am a fan of good visualization as a tool to deliver information. And you know my position that gold is a unique diversifier of some core financial risks (based on my academic work available on my page) when held not for speculative or capital gains purposes and accumulated over time allowing for price-peaks averaging.

You can find much more detailed data on gold demand at the World Gold Council site (here), but it's worth posting few charts that illustrate higher frequency data supportive of the aforementioned trends and also trends highlighted in the video link. All are from Q4 2011 World Gold Council report:

First chart to show the relationship between spot price and volatility for gold - while volatility of gold prices is relatively high, it is clearly consistent with changes in fundamentals (news flows and global liquidity shifts, that largely are indicative of future inflation expectations changes):

The 'China' v 'India' effects are strongly pronounced, with the recent economic growth slowdown in India and the talk of hiking import duties on physical gold there clearly leading to slower demand. What is remarkable, in my view, is that both China and India demand appears to have largely converged in Q3-Q4 2011 to the average levels ahead of 2009, but below the peaks. This, in my view, can lead to further moderation in the volatility of the global gold prices, while providing support for gold price levels.

The third chart illustrates the dramatic turnaround in the Central Banks' and Treasuries' propensity to hold gold since Q1 2011. And the dramatic tie-in between the official sector demand for gold and the news flow. They wouldn't tell us this much directly, but it does appear that Governments around the world are hedging against the Euro crisis risks by going into gold.

Lastly, an interesting chart on private sector demand drivers for gold as investment vehicle. Good news ETFs are buying less (though bad news here is that this means more ETFs out in the markets are now synthetic gold holders - see a note here on the dangers of that asset class). Other good news is that OTC gold instruments are on a shallow decline (suggesting no derivatives panic, but some welcome reduction in derivatives risks exposure for gold, with core risk of sudden position reversals).

As a disclosure - I am on GoldCore's Investment Committee as a non-executive member. In this role I do not contribute to public communications by the firm or to the GoldCore's marketing. I receive no compensation for this or any other post on my blog and, as you can see, my blog bears no advertising (although the latter can change at some point in time, the former will not). I am also long gold in long-term, non-speculative stable allocation that remains unchanged over a number of years. I hold no other gold-related assets, ETFs or gold-related stocks. Furthermore, my posting of this link should not be considered as an endorsement of any product or investment vehicle, as per usual.
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