Wednesday, September 12, 2012

China and Iran Buy Lot of Gold and Silver !


As an even more important reminder, in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him.

Has China managed to accumulated 6,000 tons yet? We won't know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany's 3,395 tons and second only to the US.

Going back to the "important things", here is another one: in all of 2012, according to Treasury International Capital flow data, China has increased its Treasury holdings from $1,151.9 billion as of December 31, 2011 to just $1164.3 billion: a total increase of just $12.4 billion in 6 months: the slowest run-rate since China started to recycle in budget surplus into US paper.


Central bank demand internationally continues and demand for gold in the increasingly volatile Middle East remains robust as seen in data from the Istanbul Gold Exchange. It showed that Turkey’s gold imports were 11.3 metric tons last month alone. Silver imports were 6.7 tons, the data show. Much of these imports may be destined for Iran where imports have surged an astonishing 2,700% in just one year – from $21 million to $6.2 billion.

Turkey is paying for the oil and natural gas it is importing from Iran in gold, Turkish opposition deputies have claimed, drawing attention to the enormous increase in Turkey's gold exports to Iran in 2012.  “Gold is being used as an instrument for payment. Under the guise of exportation, gold is being sent to Iran in exchange for oil,” Sinan Ayg├╝n, a deputy from the Republican People's Party (CHP), has told Turkish daily Today's Zaman.

Iranian people, encouraged by the state are also buying large quantities of gold and saving in gold in order to protect against inflation and the devaluation of the Iranian real. Turkey's total gold and precious stone exports have amounted in the first seven months of 2012 to nearly $8.9 billion, while the figure was only $1.8 billion in the same period last year.  Some $3.2 billion of Turkey’s $4.4 billion of gold sales to Iran in the first half of the year were in bullion form.

Iranians purchased $4.8 billion worth of gold in 2012's second quarter, up from roughly $1 billion in the first quarter of the year. Iran appears to be circumventing western sanctions in this way.
The rise marks the continuation of a gold buying spree that saw sales in the first half of 2012 grow more than eight fold over the first half of 2011. The US is said to be uneasy about Iran's skyrocketing purchases of Turkey's gold and has been following the sales closely.

There are rumours that Iranians purchase Turkish gold via third parties in order not to be noticed and that they entrust the purchased gold to the Central Bank of Iran (CBI), again via third parties.


None of this should seem far-fetched. One of the key reasons investors have purchased physical gold and silver is to store some of their wealth outside of a financial system that looks increasingly broken. The European banking system is a living model of that breakdown. Recent reports have revealed that more than €80-billion was pulled out of Italian banks in August and September alone. In Greece, depositors have taken almost €50-billion out their banks since the beginning of 2010. 13 Greek banks are now completely reliant on ECB funding to stay afloat. The situation has deteriorated to the point where over two thirds of the roughly 500 billion euros that banks have borrowed from the ECB are now being deposited back at the central bank. 14 Why? Because they don't trust other banks to stay afloat long enough to get their money back.

Silver miners shouldn't feel any safer banking in the United States. Fitch Ratings recently warned that the US banks may face severe losses from their exposures to European debt if the contagion escalates. 15 There's very little at this point to suggest that it won't. The roots of the 2008 meltdown live on in today's crisis. We are still facing the same problems imposed by over-leverage in the financial system, and by postponing the proper solutions we've only increased those risks. We don't expect the silver miners to corner the physical silver market, and we know the paper games will probably continue, but the silver miners must make a better effort to understand the inherent value of their product.

Gold and silver are not traditional commodities, they are money. Their value lies in their ability to retain wealth in environments marked by negative real interest rates (3), government intervention (3), severe economic uncertainty (3) and vulnerable banking institutions (33). Silver's demand profile is heightened by its use in industrial applications, but it is the metal's investment demand that will drive its future performance. The risk of keeping all of one's excess cash in a bank is, in our opinion, considerably more than holding it in the more enduring form of money that silver represents. It's time for silver producers to embrace their product in the same manner their shareholders already have.

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