Yesterday was Snapshot Day at the ECB. It's the day that the ECB takes a snapshot of the current price of the four "foreign currencies" that populate the Eurosystem's reserves. They take this snapshot at the end of each quarter for the purpose of the quarterly revaluation of their reserve assets. Marked to market (or MTM) reserves was one of the founding principles of the euro.
The four snapshots are:
USD (US dollar)
JPY (Japanese yen)
SDR (Special drawing rights)
Each snapshot is recorded as the unit's price relative to the euro because the Eurosystem's reserves are all reported as denominated in euro. So even dollar reserves are reported as a euro-denominated value. And just for the record, gold is both the first line on their balance sheet and also the top snapshot reported. I don't know if this is intended to imply the order of importance… well, yes I do. ;D
If you'd like to read more about this, I recommend any of the following posts as a good place to start:
RPG Update #4
Reference Point: Gold - Update #1
If there's any doubt as to the importance of gold on the Eurosystem's balance sheet, last quarter gold constituted more than 63% of the Eurosystem's reserves. That means that dollars, yen and SDRs combined made up less than 37% of the reserves.
We won't know yesterday's precise snapshot until next Wednesday when they release their quarterly ConFinStat (Consolidated financial statement of the Eurosystem). But we know it should be somewhere between €914.39 and €948.33. At some point during the day, someone at the ECB noted the current price of gold in euro and wrote it on a form. They don't use the London fix price, and the time at which they take it seems to vary. In April, they took the snapshot very close to the AM fix. But many other times I've noticed it's closer to the PM fix.
In any case, yesterday's AM fix was €921.889 and the PM fix was €914.391. Shortly after the PM fix yesterday, the euro price of gold rallied up, ending the week at €948.33. It would be a bit unusual for them to take a snapshot long after the PM fix, so I will guess it will be around €920.
I have made a simple chart of all of the quarterly snapshots since year end 2001, when the bull-run began and the ECB launched its new notes and coins. For the purpose of this chart, I'm using yesterday's high of €948.33 rather than what I think it will actually be, just so you can see how shocking even the least-shocking possible snapshot will be.
As you can see from the graph, the last time they had a gold snapshot lower than this was April 2, 2010, more than three years ago. Just for fun, let's compare the other snapshots from April 2010 with April 2013 to see if the USD, JPY and SDR fluctuate as wildly as gold.
Gold: EUR 823.132 per fine oz.
USD: 1.3479 per EUR
JPY: 125.93 per EUR
Special drawing rights: EUR 1.1265 per SDR
Gold: EUR 1,251.464 per fine oz.
USD: 1.2805 per EUR
JPY: 120.87 per EUR
Special drawing rights: EUR 1.1698 per SDR
For the US dollar, that's a 5% change. For the yen it's 4%. And for the SDR it's less than 4%. Yet gold, because traders think of it as just another commodity rather than a monetary reserve, changed price by 52% over the same three-year time frame! And now it's down 25% in just one quarter.
There's a point here, but I'm more inclined to let you figure it out for yourselves than to spell it out for you. Somehow, gold ended up in two different worlds at the same time. One which fluctuates wildly in concert with all other commodities, and another one of great monetary significance and relative stability most of the time. Just think about which of these worlds gold actually belongs in, and how it can possibly escape the other one, while you watch this short video presentation:
That video is from my post Fallacies – 1. Paper Gold is just like Paper Anything in case you would like to explore that question a little bit further. ;D
On December 8, 2010, at the bottom of my post Freegold in the Proper Perspective, just for fun I put up a poll for my readers to vote on two contenders for a Freegold theme song. The origin of that poll was an email from Aristotle who, if you don't know, was one of the main contributors while Another and FOA were posting, so he's been following this for as long as anyone.
Anyway, he had this song 'Firework' by Katy Perry come across his screen and he thought it made a great Freegold theme song. He emailed me on Dec. 2, and at that time almost no one had yet heard the song. It was just starting to get airplay and it had just been featured in Victoria's Secret video, which is how it happened to come across Ari's screen. ;D
He thought the imagery in the Victoria's Secret video was particularly "golden", but more importantly, he thought the lyrics were great for those who understand what Freegold means on all levels. Here, judge for yourself:
The reason I bring this up is because he followed that Katy Perry email up with another one that also made reference to the song, as well as to his favorite series of movies. Here's part of that second email:
For the past half-decade, many international policy stirrings gave every indication to me that 2010 was to be the targeted year for assertively rolling forth the freegold paradigm. But as I've said previously, I feel that the ongoing financial crisis that began with the subprime fiasco has caused instability of such magnitude that the central bankers have been forced to delay briefly and "play it safe" -- one does not dare rock the boat (if there remains any choice in deciding the matter) when the financial waters have become so turbulent and choppy. As for the new timeframe, I'd say that the reported EU plan "to make private bond holders shoulder some of the pain from any sovereign debt restructuring after mid-2013" is as good an indication of a benchmark as any I've seen. Plus, that timing nicely accommodates my additional view -- embracing a culturally significant standpoint -- that the December 2013 conclusion to The Hobbit will forever cement the desire for gold into the minds of all western moviegoers, resulting in a perfect storm of the golden variety. ;-)
On the point of the midyear "benchmark" mentioned above, it's almost spookily funny that the song lyrics mention "You just gotta ignite the light and let it shine; Just own the night like the Fourth of July". Indeed -- 2013. (Or sooner, if *necessity* precludes all freedom of choice in the matter!)
Now obviously the specific timing of July 4, 2013 and the Hobbit reference were made in jest, but as I mentioned in my New Year's Day post, Ari has been closely following everything written by the central bankers in particular for more than a decade. And he's also one of the smartest people I've met in more than a decade, so I don't take anything he says lightly.
With that in mind, as the dawn of 2013 was approaching, I decided it would be fun to put the only timing prediction I'd ever seen him make to the test. I'm sure he was less enthused about this than I was, but I thought it would be fun! I suppose it's not really fair to call it a timing prediction, because it wasn't, and it was also made in private by email. So it was more like a working hypothesis that he shared with me way back in 2010. And this is actually a much better way to view it because, not only is it more fair to Ari, but also because I had an observable phenomenon that I could use to test the hypothesis once every three months. Snapshot Day!
About five months before the Katy Perry email, Ari sent another email that also inspired a post. That one was the very simple observation that the price action in gold behaved strangely around Snapshot day on 7/2/10. The implication I took from his email was that, perhaps, there might be some "official support" at play in the gold market.
Then, again, on 12/30/11, I took note of some more strange behavior around Snapshot Day. So in this post on 12/26/12, I proposed that we watch the upcoming 2013 year-end Snapshot Day for any sign of official support. The thing was, the price of gold in euro was already languishing at €1,255.94, down 9% or €121.48 from the October snapshot. So it was a prime opportunity to watch for any mysterious levitation surrounding Snapshot Day that might imply "official support" was still underway, even though 2013 had finally arrived.
In anticipation of no support, I went ahead and dubbed 2013 "Year of the Window" on New Year's Day, meaning "window of opportunity for Freegold transition." Snapshot Day was on January 4th, and while it did come in a little bit higher at €1,261, it ultimately proved inconclusive based on my criteria. So we watched… for any sign… which way would it go? Was the window open or not? Decisively up—window not open. Decisively down—window may be open. The rest, as they say, is history. ;D
So here's that shocking chart once again, this time using €920 which is my guess. Decisive? Window open? Window closed? You decide:
If you'd like to read more of my ramblings about the Year of the Window, I recommend these posts in this order:
1. Happy New Year!
2. The Two-Legged Dog
Happy Independence Day, everyone!