Category Archives: Outside Commentaries

“As the gold price fell almost 30 percent between January and June this year, the largest decline since 1983, some 585 tonnes of gold ETF holdings were liquidated as momentum driven investors exited the market. The price fall prompted physical demand in China to reach astonishing levels, however, as mainland consumers rushed to purchase the yellow metal.

The price collapse was seen as an unprecedented opportunity by many to restock gold assets, with Chinese “aunties”, a term of respect for older women who are generally in charge of household budgets, seizing the opportunity to stock up on gold items and seasonal gifts, purchases of which were normally scheduled for the later part of the year. This led to the frenzy in retail activity that was witnessed across the country in the second quarter. The groundswell in demand saw these aunties willing to line up outside retail stores literally for hours in a bid to get their hands on some form of gold product, be it plain jewelry (primarily 24-carat) or investment bars, and in many cases, led to outlets being completely wiped out of all inventory.”

“The trouble with inflating asset bubbles is that you have to keep inflating them or they pop. Unfortunately for the bubble-blowing central banks, asset bubbles are a double-bind: you cannot inflate assets forever. At some unpredictable point, the risk and moral hazard that are part and parcel of all asset bubbles trigger an avalanche of selling that pops the bubble.

There are several dynamics at play in this double-bind.”

“But traders believe that the fundamental picture has changed. In fact, Wednesday’s Fed decision changed Anthony Grisanti from a gold bear to a gold bull, but not for the reasons Boockvar outlined.

‘It’s not so much the fact the the Fed is continuing QE,’ said Grisanti, who is the founder of GRZ Energy and a CNBC contributor. ‘It’s the message that’s being sent, which is that the underlying economy is so bad that we can’t taper $10 billion. That means that you want to own gold to protect yourself—and that’s why I’m changing my opinion on gold.'”