Gold at $1,215: falling since 2011 but institutions are buying

Gold hit $1,215 and three years later it's being snapped up

There is a startling fact. When this discussion begins, in July 2013, an ounce of gold is trading at $1,215.05 and silver at $18.77. The metal has been falling from its peak for two years and nobody in their right mind dares to say it has hit bottom. Jim Rogers, the investor everyone takes notes from, makes it clear in a post circulating since July 4, 2013: "I'm not convinced this is the bottom. Maybe it will be $900-1,000." Almost three years later, with gold averaging around $1,160 in 2015, the buyers are not those who got it wrong: they are central banks, major reinsurers and German savings banks. The paradox is not that gold disappoints the individual investor. It is that the system that sank it now needs it to survive.

From free fall to "insurance against monetary fire"

The price of the metal has not pleased those who bought at the peak since 2011. Those who hold the bullish thesis do not deny it, they reframe it. Gold is not an investment, they say; it is insurance. "It is insurance against monetary fire, the only one, and I'm not talking about burning paper", summarizes one of the most repeated positions over these nearly three years of conversation. The central idea is that whoever buys physical gold is not looking to multiply their money, but to shield themselves against the collapse of the currency they live in.

On the other side, the harshest skepticism. An analysis cited several times demolishes the argument with a figure: the return on gold between 1980 and 2015 is 89% over 35 years, and that figure only looks good if you pick the wrong year to buy and the wrong year to compare. That calculation, others reply, does not measure the metal's profitability, it measures the skill of the person fitting the dates. The debate is not resolved, but it leaves an uncomfortable fact: during the stock market bear market of 1966 to 1982, gold rose 25 times and silver 38 times. The metal has historically shone precisely when everything else was bleeding.

COMEX and the gold that doesn't exist

Here the tone rises. The central suspicion is that on COMEX inventory — the main metals futures exchange — many more paper ounces are traded than physical gold available. A figure that circulates insistently in the final stretch of the debate: 500 paper ounces for every ounce of physical gold. Another, equally repeated: the "registered" inventory — the one that actually backs deliveries — fell to 400,000 ounces, leaving nearly 100 contracts claiming each available ounce. Some directly coin "we continue for bingo" when asking when the default will hit.

The technical response comes from within the discussion itself. Not all COMEX ounces are the same: there is "eligible" gold — that which is in approved warehouses but not yet guaranteed — and a paper is enough to convert it into "registered". With that nuance, the apocalyptic calculation falls short. But the GOFO — the interest rate at which banks lend gold to each other — returned to negative territory, and that historically has coincided with strong rises in the metal. The paper market and the metal market decouple. And when they decouple, someone pays the bill.

China and Russia: gold stops being an investment and becomes a weapon

Throughout 2013 and 2014, gold changes function in that conversation. It stops being an asset and becomes an instrument of foreign policy. According to an executive of a large multinational in the sector, the People's Bank of China bought 300 tonnes of gold in the first half of 2013 through unofficial channels, without reporting it to the World Gold Council. In February 2016, its reserves add 320,000 more ounces in a single month. Russia uses the metal to collect payment for energy it sells to third parties. India bypasses sanctions on Iran by paying for oil with gold. Markets blur. The metal is no longer a passive refuge: it is a geopolitical weapon that goes back and forth.

The most optimistic go further. There is talk of a gold-backed ruble, of an alternative system to SWIFT for validating international payments, of a yuan with aspirations to be a reserve currency. There is no official confirmation of any of this, but the mere announcement moves markets, and that is all the information the one who already bought needs.

When saving money costs: the push of negative rates

If anything changes the tone of the debate from 2015 onwards, it is the experiment of negative interest rates. The Bank of Japan applies it first. The ECB hints at it. The response of Japanese citizens is the same as that of the Swiss: take cash out of the bank and keep it in the safe. The Japanese case is a much-cited news item: sales of home safes soar because keeping money in the bank starts to cost money.

In Germany the phenomenon has another face. German savings banks — Sparkassen — study storing their own cash in physical vaults instead of leaving it at the ECB. The cost is devastating: 1.50 euros for every 1,000 deposited (0.1785%) versus the 0.3% charged by the central bank. The difference is not ideological, it is an arithmetic exercise. And when money loses money, gold becomes the only asset that is not charged a fee for existing.

Munich Re: when the big reinsurer buys metal

The coup de theatre comes from Munich. Munich Re, the world's largest reinsurer, announces it is storing gold and cash in its own vaults to avoid the punishment of negative rates. Its CEO says it without diplomacy: "It is the end of monetary policy, its effects have reached devastating dimensions. They have lost control." Putting that phrase in the mouth of the planet's largest reinsurer is another thing. A circulating calculation estimates that if the company decided to hold just 3% of its assets in gold, we would be talking about $8.19 billion, equivalent to 225.4 tonnes at the current price. Just one company. The problem is not that company, it is the next one.

In the same stretch BlackRock appears. It suspends the issuance of shares of its gold ETF due to "growing demand" and later acknowledges it had sold 24 million shares without physical backing — it calls it, unconcernedly, a "oversight" — and that it will have to cover with metal the 300 million new ones being demanded. The holdings of the largest gold exchange-traded fund exceed 800 tonnes for the first time since August 2014.

Bitcoin or gold? The fight that broke out within the community itself

At some point in 2013 the debate splits in two. Bitcoin defenders argue that the properties of good money — divisibility, scarcity, verifiability — are better met by a digital currency than a physical metal. "The best propaganda against BTC is that you come here so we can pull your pants down", they snap at one of the cryptocurrency's defenders. On the other side, the argument is not technical, it is about liquidity: MtGox, the main reference for bitcoin's price at the time, has been in semi-lockdown since the previous crash. The conclusion that prevails in that stretch is prudent: someone who puts 100% of their wealth in an illiquid asset with a five-year history is not diversifying, they are gambling.

There is an episode that illustrates the level of sclerosis in the debate. Someone opens a message looking for the gold thread and complains that the link redirects them to the bitcoin thread. "Would you be so kind as to give me the correct link?", they ask. The response is a perfect portrait of the trench warfare being waged between the two refuge assets.

The anecdote that says it all: the €165,000 that changed tonalidad

A participant recounts the case of a coworker who in October 2012 spent €120,000 on gold and €45,000 on silver with a family inheritance. He had advised putting it in Spanish public debt — which was around 6% — or in the Ibex, then at 7,600 points. The response was a laugh. At the date of that conversation, the coworker's calculation is that he had lost about €50,000. If he had trinc the advice, he would be close to having gained that. The sarracena that defenders draw is different: he is not prepared, he should never have bought, he did not know how to withstand volatility. The discussion does not close. It never closes.

Canada sells all its gold and the world looks away

The last chapter is the most symbolic. In 2016 Canada sells all its gold reserves for the first time in 80 years and leaves a balance of 77 ounces in its inventory. Defenders of the metal are not alarmed: they interpret that the country is one of the main suppliers to COMEX through the bullion bank Scotia Mocatta, and that selling official gold does not close the operation, it only disguises it. Some recall that the Bank of England sold almost all its reserves in 2001, just before the metal began to rise. The parallel repeats, the conclusion holds.

With gold at $1,215 and three years of decline behind it, the question that no one on the other side answers is simple: if the metal is worthless, why are the world's largest reinsurer, German savings banks and the Chinese central bank storing physical metal at full estimulante ilegal?