With
Local Gold Inventories Depleted, Panicking German Dealers Stage
Run On Krugerrands Submitted by Tyler
Durden on 05/16/2010 13:40 -0500
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...
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.