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Securing large parcels of bullion is going to get harder and harder as above ground stocks become more tightly held, and below ground reserves become progressively harder to mine.

If you are a retail investor looking for coins, there are even periods when you’re forced to wait for more stock and premiums lift from 3-5% to above 10%.  But imagine you’re a large private company, family or government and you’re interested in hundred’s of tonnes of gold bullion in one transaction.

50 tonnes of bullion at today’s spot prices would cost you about $2b (the same amount as Norilsk is trying to buy from the Russian Central Bank below).  These sorts of quantities just aren’t available on the London PM fix, the COMEX gold futures market, or even the Gold ETF products.  The Chinese government has been desperately trying to diversify its FX reserves into gold bullion for the past decade.  However their fiat currency reserves have now reached USD4 Trillion and (by contrast) their gold reserves are officially just over 1,000 tonnes (or $39b).  That’s just 1% of their USD4 Trillion reserves!  If the Chinese do make a serious move into the gold market, they must force the spot price much higher by securing huge parcels of gold from other central banks or gold miners directly at off market (read much higher) prices.

The rest of us should be securing our individual bullion allocations at these much lower prices whilst we still can.  Even a small physical allocation has the potential to morph into a substantial hoard if prices gap higher one Sunday evening before the Asian financial markets open.

In a related development the attached article shows Russia’s Norilsk Nickel and a group of private investors are in talks to buy palladium worth up to $2 billion from the country’s Central Bank.

  • Reuters
  • Sep. 24 2014 17:01
  • Last edited 21:47

Russia’s Norilsk Nickel and a group of private investors are in talks to buy palladium worth up to $2 billion from the country’s Central Bank, Norilsk’s chief executive and co-owner Vladimir Potanin said.

Potanin, Russia’s eighth richest man, said he was so convinced the market will be in a supply deficit that he would put his own money into palladium if the company ruled there was no conflict of interest.

If the deal is agreed, Norilsk would be able to guarantee the availability of stock for long-term customers and to increase market transparency, Potanin said. Payment could involve a swap for platinum or cash.

“We are interested in buying palladium, in some form, which is now owned by the government, primarily by the Central Bank,” Potanin said in an interview at the Reuters Russia Investment Summit. Norilsk is the world’s largest nickel and palladium producer.

“We have proposed [the idea] to the government and the Central Bank,” Potanin said. “We are in a dialogue on the issue.”

The deal, if agreed, would involve a pool of private investors and banking finance.

The volume of palladium in the Central Bank’s reserves is a state secret but it holds one of the world’s biggest gold and foreign exchange reserves of around $460 billion.

Palladium prices hit their highest since 2001 in London in early September, on fears that Western sanctions on Russia over its role in Ukraine could hit supply of the metal.

Norilsk expects that the market for palladium, used in emissions-capping catalytic converters in automobiles and in jewelry, will be in a structural global deficit in 2015. It has the same view on nickel, which is used in making stainless steel.

Asked how much palladium Norilsk would like to acquire from the bank, Potanin said: “I take into account the possibilities Norilsk Nickel has, the view of the banks that are ready to grant the financing and the pool of private investors that are ready to take part in this.

“And we estimate our opportunities are up to $2 billion. We can structure the acquisition of palladium or instruments related to it,” he said.

He said the decision would depend on the Central Bank and added that Bank of America-Merrill Lynch had previously shown interest in the financing of such a deal and had not signaled any loss of interest since then.

Norilsk, whose production accounts for about 40 percent of the global palladium market and one-fifth of the nickel market, markets its key metals on its own — mainly to end-users.