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On some aspects of the situation in the gold market in 2007-2008
Material posted: -Publication date: 29-03-2008

Since the end of 2007 in the gold market there are a number of "illogical" events, which allow us to speak about the beginning of serious changes in this key sector of the global economy. Assessing the situation in the gold market experts stress that, due to the peculiarities of gold as a commodity, this market segment has a number of features. In particular, virtually all actions taken by the players in this market, stretched in time in order to avoid serious price fluctuations and not to provoke a crisis in the gold market.

So what is happening in the market today, it pledged its members a few years ago. However, with the rapid increase of the crisis phenomena in world economy in General and in relation to the financial position of key players in this market it can take some prompt action in the gold market. Experts note that similar steps can manifest in the form of a chain of "illogical" events, some features, out of General context the stable development of the market.

According to the Association of the London gold market daily in London, which is an international centre for settlement of transactions in gold bullion, bought and sold about 30 million Troy ounces, or 930 tonnes of gold worth more than $ 10 billion. Some experts believe that the real scale of the world's gold market anymore, at least, three times.

The world price of gold since 1919 and until 2004, was set in London, where twice a working day is fixed, which is attended by five of the world's largest dealers of gold. Currently, team members are the Mocatta & Goldsmid, N. M. Rothschild&Sons, Deutsche Bank Sharps Pixley, Montagu Precious Metals and Republic National Bank of New York.

The redistribution of the gold market began in the late 90-ies of XX century. After the liberalization of the gold market, since the mid-seventies to mid-eighties, gold has increased in price ten times — from 35 to 350 dollars per Troy ounce (31,1035 g about), and was the best from public investment goods.

Then followed a ten year period of stabilization, when prices were smoothly varied from 355 to $ 385. ounce. At the beginning of 1996 with the efforts of Soros and goldsmith, the price of gold jumped to 415, however, by the end of the year it dropped to 365.

But in 1997 there was a real collapse. The price of gold fell to $325, and then, during the stock market crisis — to $300 per ounce. December 12, 1997 it fell to $283 per ounce (less than $10 per gram). It was the low gold price over the past 18 years.

In 1998, the price of gold on the European exchanges (London, Paris, Frankfurt, Luxembourg) amounted to an average of $295.

In 1997, the world sale of gold has doubled and exceeded 1,000 tons this year, 14 Central banks have sold 825 m., and private investors in North America and Europe — up to 246 If the United States, with gold reserves of 8,000 tons, or Switzerland decided to launch on the market of 1,400 tonnes of its gold, the world market would have collapsed irrevocably.

In 1998 everyone expected gold sales by Central banks of countries that joined the Euro, as reports surfaced that the Euro will be provided with a smaller amount of gold than previously planned. In this regard, it was assumed that Central banks will continue to sell gold that caused some concern among dealers and manufacturers and have influenced the decline in prices.

Since mid-1998, according to experts of the world gold market is at a critical stage because due to the financial crisis, some Central banks and hedge funds were forced to sell part of its gold reserves.

In the summer of 1999, the IMF took the decision to sell 300 tons of gold, officially to help their poorest debtors.

At the same time (6 July 1999), according to media reports, the Bank of England began the auctioning of half of its gold reserves. The experts noted that this event will become a turning point in the history of the world economy. In the information letter that accompanied this event, experts argued that gold is losing its reserve currency status — it is assumed that as a result of this sale, the price of gold will fall significantly. The total amount of gold sold amounted to 300 tons (out of a total reserve of 715 tonnes). At auctions were sold for about 800 thousand ounces of gold (20 tons). In 2001-2002, the Bank of England has continued a series of gold auctions is now selling 120 tons of gold.

Is typical, but during 8 of the 13 auctions conducted by the Bank of England due to weak demand, was forced to sell gold at below market price.

The increase in the price of gold, what is happening currently in the market that began after the terrorist attacks of September 11, 2001, when collapsed, the us stock market. The day before the tragic events of the gold ounce was worth $ 271., and a week is $ 293. ounce. Since then, quotes on gold in General is steadily increasing.

The reason for the increase in demand lies in the deterioration of the geopolitical situation in the middle East and heightened concerns among the business world the ability of the US to current methods solve the Iraqi crisis. In financial markets has significantly increased the tendency to buy gold, which is regarded as the most reliable shelter for capital during periods of serious international crises. The rising price of gold also help the weak positions of the American currency. Miners this situation at hand, but jewellers expect the decline in demand for jewelry of this metal.

Global instability in the economy and politics led during the winter of 2002-2003 to a climax in the gold market for the entire period of sustained growth rates: jumped from 320 to 385 dollars per ounce. This rise began in December 2002 after a sharp strengthening of the Euro against the U.S. dollar. And in the beginning of 2003, contrary to expectations, short-term correction in the gold price occurred even more it will splash. The gold market has embraced the hype and crazy attitude to the purchase of the metal, fueled by the events surrounding Iraq and North Korea.

In March 2004, fifteen Central banks in Europe control about 10% of the world's gold reserves) have agreed to increase the amount of gold annually sold on the open market, from 400 to 500 tons. In addition, the European Central Banks agreement on gold sales has been extended until 2009. It was extended to 2009, and suggests that within five years, banks will be dumped on the market no more than 2500 tonnes of the precious metal. According to the same document, signed in 1999 and ceased operations in September 2004, this limit was 2,000 tons.

At the same time, experts Barclays Capital, said that gold prices already peaked in the medium term may be reduced to $ 350. per Troy ounce.

It is also interesting that the Bank of England did not wish to renew the agreement: its representatives said that they do not want to mislead the public, as sales of gold in the coming years are planned.

15 APR 2004 the main operator of the market, its Creator, more than a hundred years of controlling the market became a British investment Bank N. M. Rothschild, said that he from this market goes. Why did he do it publicly? According to experts, firstly, really he'd left, and, secondly, it is important that no one of his name and his business not to be associated with this market. Then experts did not exclude that the withdrawal of Rothschild from the gold market may cause structural shifts the gold market and throughout the global economy.

In 2005-2006 there was a further and very significant increase in gold prices on world markets. Thus, in the first quarter of 2006, gold prices rose by 24%, while the maximum price was recorded on 12 may 2006 — $ 725. per ounce, i.e. growth since the beginning of 2006 amounted to almost 40%.

However, in 2005 the European Central banks are once again heavily sold off gold. So, in August 2005, the news Agency Bloomberg with reference to the world gold Council reported that sales of gold by European Central banks this year has already exceeded the limit set by them to ensure stability in the market of precious metals. The twelve countries of the "Eurozone", except for the UK, and also Switzerland and Sweden, signed 27 September 2004 agreement, under which the annual volume of gold sales would not exceed the established limit in the amount of 500 tons. Meanwhile, the European Central Bank in 2005, has sold 506 tons of gold. To such excess has led to the sale of gold of the Banque de France. In 2005, the French Central Bank sold 17 tons of gold, "to obtain funds for the purchase of shares of the Bank of International Settlements.

In early October 2007 in a number of mass media there was information according to which the gold reserves of great Britain, is destroyed by exposure time. Stored in the Bank of England gold bars covered with cracks and fissures, with the result that their cost is reduced. The management of the Bank recognized this fact in its response to the request of the journal Metal Bulletin. In the comments of the Bank of England stated that they assessed how "aging" the gold bars had an impact on their value. The Bank stressed that we are not talking about the purity of the gold, but only about the appearance of the ingots.

Since the beginning of 2008 in the gold market and around the gold had a series of "illogical" events, suggesting that this segment of the market will soon face major changes.

Continued conflict around Potanin and Prokhorov of Norilsk Nickel (the main gold mining company in Russia). Characteristically, Potanin closely associated with the French business and the Bank financial group Potanin-Prokhorov — "ROSBANK" — needs to be sold to the French Bank Societe Generale.

First of all, all these events occurred in the period of higher gold prices, which amounted to 17 March 2008 1011,25 dollars per Troy ounce. Then began a fairly rapid drop in prices for this metal.

Three days before this, on March 14, it became known that the Central Bank of Ethiopia started to urgently check their gold reserves after it became clear that at least some of the bars are fake. The fraud was discovered when some of the ingots (300 kg) was staged in South Africa. These gold bars were purchased by Ethiopia earlier for $ 17 million. Supplier of counterfeit gold taken into custody. Arrested his alleged accomplices — employees of the Ethiopian Central Bank, chemists, which the purchase was presented for examination.

Five of the top managers of the Central Bank of Ethiopia and three employees of chemical laboratory, acquired by the Bank superintended the gold and hiding the fact from the state of forgery, were also arrested. According to news portal All Africa, in total, in the case of fake gold bars law enforcement agencies of Ethiopia has arrested 19 people. However, the story with fake gold is not over. Starting the investigation, the Ethiopian authorities have discovered that bought five years ago, the party of bars weighing 36 kg is also a fake.

Under suspicion is another batch of gold bars to the Central Bank, which hit the Bank after the confiscation of the smuggler who tried to take the gold in Djibouti.

This news, in fact, first introduced into information space a thesis that even gold is being stored in state depositories may be false.

In addition, the scale of activity of the criminal community standing behind the Ethiopian government to supply the fake of the party of gold suggests the presence of some international criminal groups, - oriented global market of gold, and not jewelry, and special — bullion. Given that the international trades on this gold held in London, it can be assumed on the controllability of these processes from a single global centre.

March 24, 2008 it became known that from the vaults of the Bank Societe Generale, previously has suffered financial losses of up to $5 billion from the actions of the trader (and this was announced in the midst of the liquidity crisis to European banks), traceless dipalo about 15 tons of gold worth about $500 million the French claim that the precious metal was given to the Turkish jeweller Goldas firm to implement, but disappeared. Societe Generale has accused the Turks of fraud, as can neither learn from them about the fate of this gold, or get money for it.

For this reason, experts note that the scheme according to which a certain firm might pocket the Bank a lot of gold, looks pretty doubtful. However, apparently, being in a difficult situation due to huge monetary losses, Societe Generale was forced to sell off their gold reserves, to increase the liquid assets.

"Societe Generale has confirmed that it has started legal proceedings against Goldas in order to force her to perform their obligations. However, the Turkish company has called the accusations slander and sent a counter-statement to the local Prosecutor. Characteristically, Goldas is a pretty solid company, it accounts for 60% of gold imports to Turkey. Societe Generale is working with her for five years.

It is unknown, how the matter, but, even if the Turks prove their honesty, they can refuse further cooperation with the French. After all, the claim of the Societe Generale, of course, caused them reputational damage. Because of the scandal, March 21, was even suspended trading in shares of the Turkish firm. And the loss of such a major asset as Goldas, certainly will not contribute to the exit of Societe Generale from the crisis.

Experts Express their version in respect of the actions of the Bank: all this seems like a tragicomic, if not part of a finely calculated plan, as Societe Generale is now interested in the large investor to solve their problems. Recently it became known that the Bank BNP Paribas abandoned plans for its absorption. Therefore, it is possible that Societe Generale brought suit against the Turks with the aim of increasing its attractiveness for investors: the French claim looks obviously failed, but it can cause short-term selloff of Bank shares that can be leveraged by a welcome Savior.

What happened to Societe Generale Bank may, once again shows the presence of some international criminal groups, or hidden relationships in the global banking system, which transported tons of gold.

Next, in early April (9.04.08), it became known that the leadership of the International monetary Fund (IMF) approved the sale of 12.97 million ounces of gold (about 403 tonnes), representing about 12% of total inventories as of the end of February 2008. gold reserves in the IMF amounted to 3217). The main declared reason, allegedly pushed the IMF on such a serious step — the reduction of funding sources.

In turn, the decision of the IMF caused alarm in the markets and the assumption that the decision of the IMF may lead to a sharp increase in the supply of gold on world markets, which in turn is not the best way affect the price of the precious metal. However, most experts claim that the decision of the Fund to sell its gold reserves will not affect the gold market. The possibility that the experts determine, based on the fact that currently the European Central banks are bound a 5-year agreement on sales of gold, by which they are obliged to limit their sales to 500 tonnes a year up to the end of September 2009. In this regard, according to the head of the IMF, the Central banks of Europe and the U.S. may reduce sales of gold to enable the Fund to sell its stocks without risk to increase the supply of this metal on the market. Moreover, this decision still must be approved by the US (which is the main donor to the IMF), as well as at least 85% of the countries-members of the organization.

It is important to note the fact that the decision to sell IMF gold was announced after it was announced a serious restructuring of the IMF, which will have to change the system of voting by representatives of member countries of the Fund. In this situation we can assume that a specific quota in respect of the participating countries, the IMF will become a bargaining chip in exchange for her approval of the decision on the sale of gold.

Tags: USA , security , crisis , finances

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