What does the $3.5bn Saudi gold rush in two weeks mean?
The revelation on this blog, actually sourced from what appears to be a reliable story in the Gulf News, the leading regional newspaper, that Saudi Arabia has spent a total of $3.5 billion on gold over the past two weeks has naturally attracted huge worldwide interest.
I can not verify the source but all I can say is that this has the hallmarks of a genuine story, based on my 25 years in financial journalism. First, it was buried on an inside page and the amount was given in UAE currency later in the story – hardly the action of somebody looking to manipulate the gold price, more an indication that the sub-editors did not understand the importance of this story.
Second, this is how the best stories emerge from Saudi Arabia – the market is not very transparent but insiders do notice big changes and pass this information on, and it surfaces as well sourced rumor. I am afraid this is about as good as it gets in the Middle East.
Truth in rumors?
After 9/11 we had rumors about chartered 747s flying full of gold and dollars back to the Kingdom to avoid the increased scrutiny of US regulators. Was it true? Real estate here is said to have boomed on the back of this new money – that certainly happened, did the transfer? We do not know for sure.
So what is going on? By whom and why are these gold purchased being made? Again we can only indulge in informed speculation – nobody is ever going to give an on the record comment on this.
However, we do know that the Saudi stock market has crashed over the past two weeks. There has been an enormous amount of money cashed out. The obvious source of the money for gold purchases has to be that money.
The problem for Saudis is that by cashing out of local stocks they get their own riyals in exchange, and riyals are effectively US dollars due to the currency fixed link. The US dollar is presently high, so diversifying into another asset class makes sense.
But what do you buy? What is safe these days? Dubai villas, perhaps but the rest of regional real estate is crashing? US stocks – you must be joking?
Conspiracy nonsense
I think some of the conspiracy theorists are wide of the mark. People love to come up with elaborate rationales for actions. It is laughable to see Saudi Arabians rushing to buy gold as a conspiracy to bring down the West. The West has brought that on itself, and the Saudis are just trying to find an effective shelter for their wealth from that collapse.
Gold and silver are precious metals with a limited supply that retain their value over time. Also if we are in a repeat of the late 1970s, as this author believes, then cash and gold are the safe havens, with silver probably the best of all, if very volatile.
Therefore, my lesson to draw from the Saudi gold rush is that very much higher gold prices are coming and investors in the Kingdom are making a logical choice ahead of the global pack. If you can not beat them I would join them and preserve your capital.
Incidentally, what I would like to know is who is buying? The report in Gulf News makes it sound like the broad mass of local investors, not the government, and that would explain why such a report has surfaced. If it was the government we would not have heard about it.
So this is just a local flight to a safe haven asset class by people panicking about plunging local and global stocks. But $3.5 billion in two weeks is a big shift in demand for gold in a short period.
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Generational Wealthy have always through History considered Gold like a safe storehouse for Wealth in time of crisis,a great way to inflation proof your assets and diversified as high as 20% in Precious Metals.They have transferred this wisdom from generations to generations.
What I find interesting is how large these quantities are and their possible impact on the shortage of gold around the World.We are seeing signs of gold shortage all around the World (US mint, South Africa) specially with gold coins (a more affordable alternative for most people), but still well connected people find ways to transfer part of their assets in physical gold.
We will in the coming months an interesting challenge for small investors to find the right partners to buy physical gold from.It’s time to do your homework and investigate companies with impeccable track record and strategic alliances such as Anglo Far East and JWS if you wish to acquire some tangible private gold.
Most of savvy investors have already diversified in physical gold.
We will see many moves of that type in the 2 coming months from Asia specially, as capital gets reinvested in more secure positioning.
Let’s remember that gold bull markets follow 20 to 25 years cycles,
it only started in 2000 and the players who have artificially keep its price low are “out of ammo” – Interesting time we are living
Olivier Leca
November 27, 2008 at 12:26 pm
[...] also looks like there’s another little wedge pattern forming at around $740 an ounce.This report by Peter Cooper at ArabianMoney.net, which also appears at Seeking Alpha, lends some credibility to [...]
All the gold in Saudi Arabia | Commodity
November 18, 2008 at 1:18 pm
Scott — you have 3 too many zero’s …………..thats 3.5 trillon you wrote. If 3.5 billion oz of gold were purchased, you’d see it in PRICE. So, remove 3 zeros off the dollars, and ounces.
Bill
November 18, 2008 at 2:54 am
If that saudi gold purchase story be true, then the price for gold should be at a price well over $1000/oz or more by year end.With the mention of gold dealers running out of stock, its a start of good times to come for gold & silver.
MMA
November 17, 2008 at 5:48 pm
No Scott. You have too many zeros in your calculations. You have:
3,500,000,000,000 – and called it 3.5 billion, when what you wrote is 3.5 trillion.
Tis mistake has thrown all your weight estimates out of whack.
Sorry young man, you’ll have to re-do the entire thing.
TDS
November 17, 2008 at 11:39 am
Dear Peter,
I am surprised to hear that 3.5B purchase of Gold but nothing much still happening to the price of gold, but again we don’t really know if it is a true story or not??
My logic says that with big purchase 3.5B, it is a lot of gold and I heard other stories coming that gold dealers are running out of stocks, so why on earth price of gold has not moved much at all???
Rule of supply and demand must dictate the increase of price with massive one hit 3.5B purchase but as we see price did not move much at all last week.
Robert Chu
November 17, 2008 at 5:28 am
$3.5 billion…that’s $3,500,000,000,000…divided by approx $1000 per ounce, so that is 3,500,000,000 ounces…or 109,375 tons (2000 lb per ton)…
Wow…
scott in maryland
November 16, 2008 at 10:35 pm
$3.5 billion at $730/oz avg would be 149 TONS of Gold, equal to the total holdings shown for Saudi Arabian Gold reserves
cheapybob
November 16, 2008 at 10:34 pm
a recent purchase of approximately 400+ tons
of GOLD by Russia (15bn $)seems to be a thru
camouflage-event , since Russia deos not have the monies for such purchase do it recent situation in Georgia. Any thoughts??
w.h.warnick
November 16, 2008 at 10:18 pm
Also add to my last: It is my opinion that there is virtually no central bank gold actually being held in physical form anymore. I think it has all been leased out and sold, so that the central banks now only hold promises from the billion banks to repay it to them.
Thanks Sherlock, I wonder how long it will be before the likes of JP Morgan, Goldman Sachs, etc. have the ability to do this, ha! Maybe the TARP will buy gold in the open market to help them out.
JimODonnell
November 16, 2008 at 9:39 pm
I follow the metals closley and have not seen this old sage addage in a long time: “Bad money drives out good money.” This means from circulation and NOT from value. Seems gold is hiding until the time is right.
JimODonnell
November 16, 2008 at 9:32 pm
In the mid-East water is everything. Gold is honorable. Paper money is is a came. A rifle is serious..
Hondo Lane
November 16, 2008 at 5:45 pm
On 3. thanks G.H. for the confirmation – timing is very difficult and I wonder if this purchase will be under water in a couple of months? We are going to see renewed dollar weakness when the sell-offs come to a close in global markets, i.e then they will sell the dollar again. That will be the turning point for gold and silver – and it could be a very big swing indeed. What other asset class offers this protection? I certainly find it difficult to imagine gold negative conditions emerging – such as a good economy, rising stock market, etc.
peterjcooper
November 16, 2008 at 3:06 pm
i concur with your observations
be long silver and or gold i say
kindly
duncan robertson
November 16, 2008 at 8:09 am
Peter….
One of my bullion contacts in the Middle East confirmed this purchase last month…right before the price was taken down this last time….it was a syndicate of several people and they got killed when the price dropped. I am assuming they still have the bullion but i don’t know if this is the same purchase or possibly another, but I do know it was thoroughly discussed at the time.
G.H.
November 16, 2008 at 1:58 am
I liked this from seekingalpha.com today – clearly gold is about to take-off sky high…that is what the Saudi gold buying means:
“It took many years of study and analysis — and untold hours of staring at market fractal patterns — before I had one of those special “eureka” moments about the way markets behave at critical reversal points.
Although it’s easy to lose sight of this, the main goal of any speculative endeavor is to figure out the point with the maximum potential return on capital, combined with the minimum potential risk to that capital.
In my opinion, the point where there is the highest reward, with the lowest risk, is the third test of an important reversal level.
Gold is undergoing just such a critical third test right now, and it’s doing that just above the massive $675 energy level that defined the whole last phase of the bull market.
The upside is enormous from here, while the downside can be kept well under control, as a definitive breakdown to new closing lows would not be good in this situation, and would require immediate action to close down positions.
Furthermore, the fractal dimension on the daily gold chart is at a very-high reading of 65, which is telling us that there is enormous energy available to power a very big trend.
This is about as good as it gets for a long set-up in gold.
Subscribers to the daily Fractal Gold Report are positioned well, as we took profits up at $920 right before the last plunge, and we again just took some quick profits before this latest decline, playing the short-term patterns while this bigger opportunity is developing.
Right now is the time to get back into gold for the next major rally phase. It should be starting at any moment.”
peterjcooper
November 15, 2008 at 5:46 pm
Peter,
I was thinking about the $3.5B purchase of gold, and also of gold reserves held by countries, which can be in the hundreds of billions. What struck me as odd was that these amounts or reserves seem paltry compared to the paper money being thrown at the economic problems throughout the world. And how could gold even make a dent against the GDPs of some countries which are measured in the trillions?
Tyrone
November 15, 2008 at 9:52 am