Get Ready for the Gold Rebound Before It Is Too Late
Aug 09, 2012
While timing exactly when the rebound will happen is impossible, Marshall Auerback, director of Pinetree Capital, believes now is the time to pay the gold market renewed attention. In this exclusive Gold Report interview, he explains why the gold market is more interesting than in the recent past and shares what he would do if he were chairman of the Federal Reserve.
The Gold Report: Marshall, in a July 12, 2012, post on the Pinetree website, you suggest that some central banks may have forward-sold their gold against their initial positions, thereby eliminating them altogether. Can you tell us more?
Marshall Auerback: I have seen these central banks in action and have met with people from several of them. They would contend it was their obligation to maximize the yield on any of the assets they had in their reserves, including gold.
Back when gold was in the low $300s/ounce (oz), the Bundesbank considered gold nuclear waste from the old gold-standard era. There are some suggestions, based on Roger Lowenstein’s work, that the Bank of Italy lent out some of its gold to long-term capital management as a funding source. The point is that these banks have been a major source of flows into the market. These flows have had the same impact as de facto sales, in that they make available gold to the forward market and help fill the gap between supply and demand.
This is significant that the Bank for International Settlements has talked about reclassifying gold for commercial banks from a Tier 3 to a Tier 1 asset, which effectively means that gold will have 100% weighting, as opposed to 50%. This reflects a change in how the official sector views gold.