“FEAR, Mr. Bond, takes gold out of circulation and hoards it against the evil day,” as 007 learns from a Bank of England officer in Ian Fleming’s Goldfinger (1959).

So “in a period of history when every tomorrow may be the evil day, it is fair to say that a fat proportion of the gold dug out of one corner of the earth is at once buried again in another corner.”

Evil-day gold buying really motored since the credit collapse began in August 2007. Soaking up investment dollars worldwide, in fact, new allocations to the metal – whether trust fund or owned outright – swelled by 38% during the first quarter of 2009 compared with total demand between Jan. and March 2008, according to marketing-group the World Gold Council (WGC).

Within that figure, what the GFMS consultancy (who supply the WGC with its data) calls “identifiable investment” leapt 248% compared to Q1 ‘08. And gold ETFs made the headlines once more, sucking in “another quarterly record” as new inflows required 465 tonnes of metal to back them, thus dwarfing the previous record of 149 tonnes set in the third quarter of last year.

That doesn’t mean the world’s investors are now all in, however. According to the World Gold Council’s Marcus Grubb last month (using we-don’t-know-which data), current gold investment allocation stands at less than 0.6% of total global wealth.

It makes a nice pie chart, and it offers a useful snapshot of different asset classes vs. each other. But we also think the idea’s worth refining. Because this estimate both over-states liquid assets in toto and under-estimates the stock of gold available to investment flows – whether retail or wholesale.

First, note the scope for double-counting between pension, mutual and insurance funds. I’m not saying the WGC’s data trips up on that error, but you can see how likely it seems given the end-allocation categories applied. For instance, “hedge funds” are stripped out separately (as are REITs and private-equity), even though institutional allocations via funds-of-funds will be counted elsewhere under the broader “funds” title.

Similarly, but more pertinent, the outstanding quantity of “gold – investment stocks” underplays the true volume of metal held as a store of wealth. Simply counting the “investment” volume excludes fully 84% of the above-ground supply, as another chart from the WGC’s presentation shows.

Why not also include “official sector” gold hoards? Sovereign wealth funds and FX reserves were included on the other side of the ledger, after all.

More crucially still, why not include jewelry? Trying to split out the volume of trinkets held for aesthetics alone might feel easy enough to a Western analyst just back from window-shopping at Mappin & Webb. But across south-east Asia, and most particularly in India – typically the world’s No.1 destination for physical gold each year – large, chunky necklaces and bracelets make for “investment jewelry”, acting as a store of wealth in the absence of any formal banking network.

Still, the point is well made, we believe. Gold remains but a slither of investable wealth – albeit a fast-growing slither as the value of other assets has dropped.

“Gold [has] been deprecated and reduced as a financial asset,” as Jeffrey Christian of the CPM consultancy put it earlier this year. “In 1968 gold may have represented 4.5% to 5.0% of the world’s wealth…By the 1990s it was down to 0.2% of the world’s wealth. Not that gold was falling in value so much as the other wealth – stocks, bonds, paper assets, government bonds, corporate bonds, bank deposits – were exploding once the tie to gold was severed.

“In 2006 gold represented 0.2% of world wealth. At the end of 2007, it was about 0.4%. Depending on what you think about wealth destruction in 2008, it may have been 0.6%.”

That figure just about matches the WGC’s estimate of 0.7% (perhaps they used the same inputs and excluded the same volumes of central-bank and jewelry gold?). It also contrasts with our own Estimate of Gold as a Proportion of Investable Wealth at nearer 2.7% by the close of 2008.

Either way, gold is fast-attracting attention – both from nay-sayers, retail investors and new die-hard bulls amongst the professional institutions. Regulatory filings show legendary hedge-fund manager John Paulson took his position in the SPDR Gold ETF (NYSE:GLD) to 30% of his portfolio during the first quarter of 2009. Paulson & Co. now owns 8.7% of that paper – as well as significant chunks of the Gold Miners ETF (NYSE:GDX), Kinross Gold (NYSE:KGC), Gold Fields (NYSE:GFI) and AngloGold Ashanti (NYSE:AU) – if not any actual bullion itself.

Does that in itself make gold a buy? Of course not. But compared to the evil days of 1930s depression – or the fearful inflationary panic of the late 1970s – the world’s wealth remains very under-invested in metal right now.

Regards,
Adrian Ash

Source: The World Gold Council Wrong About Gold

Jon Nadler at Kitco.com ran across an article in The Financial Chronicle (India) which reported that “India and China may press for the sale of the entire gold reserves of the International Monetary Fund (IMF) to raise money for the least developed countries. The IMF holds 103.4 million ounces (3,217 tonnes) of gold that, if sold, can fetch about $100 billion,” so that “the money thus raised must be used in tackling poverty in the poorest nations,” which makes sense if you think that you are “tackling poverty” by bailing out their rich-nation creditors, including the World Bank itself.

Apparently, it is a fait accompli anyway, as “The G20 heads of state meeting in London earlier this month agreed to sell a part of the IMF gold to raise $6 billion for poor countries during 2009-11. This was a component of a $1.1 trillion package worked out by G20.” Whew!

The World Bank – which is a total failure, which is explained by it being a ludicrous clot of communists and socialists – never saw economic tragedy coming, either, and estimates that “over 90 million people may be pushed into poverty in the global economic turmoil.”

The Really Funny Part (RFP) is when “an official” said, “We are working on a more ambitious proposal of selling the entire gold off, as it is an idle asset with the IMF”! Hahaha!

It’s so idle, and yet here they are selling it to bail themselves out because they don’t have anything else to sell that is worth anything! Hahaha! What a moron!

Gold is thus functioning perfectly, as it retains its value when everything else has turned to crap, and yet here is some “official” of the worthless World Bank looking us right in the eye and saying they want to get rid of it all! Wow! What numbskulls!

It makes you wonder, “What will they do next time when there is no gold ‘sitting idle’ that they can sell?” Hahaha!

It was later that we read, “The gold, if sold, would go mostly to central banks,” which makes you wonder what in the hell is going on, since it has been the central banks that have been big sellers of gold for years, and now they are getting the gold of the International Monetary Fund – the “central bank of central bankers” – that was the original gold that we gave them as collateral against their stupid Special Drawing Rights? Hahaha! Now SDRs will be fiat currencies, too! Hahaha!

Mr. Nadler writes that the reason is because, “One thing is clear; we have long warned that the line of poor, and about-to-become-poorer, nations holding their outstretched hands at the IMF’s doorstep, had wrapped around the block. The institution has not been faced with this kind of global panhandling in its entire history.”

To add insult to injury, it is embarrassing to have it explained that “India and China are looking at three ways of using the money so raised. 1) The $100 billion be invested to improve IMF’s liquidity. 2) The money be committed to improving incomes of the poorest countries. 3) A mix of the first two options be considered.” Hahaha!

Before I dismissed this odious piece of ignorant, thieving crap entirely, I thought I would first try this at work as a last-ditch, desperation attempt to save my job!

So the next day I went in to see my boss and told her that my new plan was to sell the company’s only assets to “tackle the poverty” of some guys who owe me money, which is money that I loaned them by borrowing it from their pension fund, so that they can pay me back my money, so that I can pay back the pension fund.

To make sure the plan “sells” I literally used the World Bank format, and I told her, “We are looking at three ways of using the money so raised. 1) All the money be invested to improve my liquidity. 2) The money be committed to improving the incomes of the poorest debtors. 3) A mix of the first two options be considered.”

Alas, it did not work for me, and my job is as tenuous as ever (probably more so!), and so I assume it will not work for the IMF, either, but as weird and bizarre as it is to even suggest doing such a thing, MoneyWeek.com reports, “The gold market is behaving in ways never seen before” and “in recent months the supply of old gold scrap – consisting mainly of jewellery sold by owners to turn their metal into cash – has actually exceeded demand for jewellery manufacturers.”

The other numbers are as peculiar, like, “According to research consultancy GFMS’s Gold Survey 2009, world demand for jewellery fell 10% last year, supply of scrap rose by 27%, official sales halved, and investment demand soared 61%.”

Now, I can understand how people can get so far in debt that they sell their gold, and I can understand how heavily-indebted people can cut back on buying expensive baubles and bangles, and I can see how official sales can be halved by interventionist governments in collusion with each other and bullion banks, but none of that can explain why investment demand is “soaring” unless they see profits, which they obviously do!

Whee! This investing stuff is easy!

Until next time,

The Mogambo Guru
for The Daily Reckoning

Source: Worthless “Officials” Sell Off Precious Gold