Russian Gold Rush – Precious Metals Supply and Demand

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by Keith Weiner, Acting Man:

This week, we saw a tweet from a prominent goldbug. He said, “Russia added another 9 tons of gold to its reserves in March. The hits just keep coming.” How many errors in this short quip? We count six, exactly one error for every two words.

One, we call this the fallacy of the famous market actor. Russia is famous. Its purchase of 9 times is therefore imbued with meaning, that the sale of those same 9 tons is not given. Because the sellers are not famous.

Two, the concept of stocks to flows measures the abundance of a commodity. It is not a measure in terms absolute tonnage, which would be useless. It looks at how much of the good is accumulated.

Virtually all of the gold ever mined in human history is still in human hands. Russia’s purchase is merely the shifting of a very small percentage of total stocks from one corner of the market to another. Hell, 9 tons is a small fraction of 2017 mine output let alone 5,000 years of accumulated mining output.

Three, this goldbug speaks often of a change in the monetary order, hopefully and presumably one based on gold. But this bit about Russia shows the ambiguity of most gold bugs. Buy gold because of new monetary order and because its price will go up. Huh? If the dollar is collapsing, what meaning does the price of gold measured in dollars mean? Conversely, if one is promoting a new monetary order, why promote Russian gold buying to promote a quick trade to make a buck?

Four, this purchase by Russia is bullish (remember, it’s not a sale by smarter people to the dumb money of central banks). Is all news bullish? 2011-2016 would suggest it isn’t.

Five, a gold standard is not about central banks buying gold. Or loading up on gold. Or having “enough”. There is no amount of gold that could ever conceivably be enough for the Russian central bank to have, to defend a gold price peg. All rubles (and dollars, pounds, etc) did not begin life as gold deposits. They cannot retroactively be declared to be gold-redeemable.

Finally, the ruble is not exactly in a rising trend. So whatever “hits” he means, it is not a “hit” to the US dollar. Which the goldbugs want to hear, in the dualist world of gold going up vs. seeking out good news about the dollar going down because it’s good for gold.

USD-RUB, weekly – to be precise, the Russian ruble weakened sharply until early 2016, making a low of more than 85 rubles per USD. Since then it has actually strengthened quite a bit, but the trend was recently rudely interrupted after new sanctions were imposed on Russia. [PT]

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