Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

What Difference if Central Banks Buy Gold Local Production Or On the International Market?

Commodities / Gold and Silver 2011 Jan 26, 2011 - 02:52 PM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleChina currently produces 340 tonnes of gold annually. This may increase by up to 100 tonnes a year or more. It imported 210 tonnes in 2010. The demand for gold is increasing in China and this is likely to continue in line with the growth of the Chinese Middle classes. We do not know for sure how much the People's Bank of China took into its reserves and are only likely to know in two years time. Russia produces around 250 tonnes of gold per annum. It increases its reserves by 152.4 tonnes by January 1st 2011.


These two nations present different requirements from the local and international gold markets, but does it make a difference where the gold is bought?

Local Production and additions to national reserves

China

China's central bank, the People's Bank of China, does not disclose the annual amount it purchases for its reserves, but uses an agency to make these purchases for it. Every five years, this agency delivers the gold bought to the bank, which then announces its increase. The last time it did this was three years ago and it reported an increase of 454 tonnes, averaging out to 91 tonnes a year.

If this amount had been bought from local production, it would equate to the amount of local production over those five years. As the People's Bank of China does not want to disclose how much gold is bought locally and how much, if any, is bought in the international market, we will never be sure.

Russia

Russia produces in the order of 250 tonnes [2010 approximation up from 184.49 tonnes in 2009 - 38% increase] locally. Russian central bank purchases have been rising steadily [25% per annum] over the last two years, but not as fast as local production. There is scope for the central bank to increase the volume of local purchases and keep it at 50+% of local production.

Vladimir Putin, Russia's Prime Minister [but the power behind the throne] had previously stated that Russia would be buying on the international market. One of the Deputy Chairmen of the Russian central bank said the bank had bought its added reserves from local production. Is one right and the other not, or are both right?

What dictates where the gold is purchased?

The London Gold Market -International physical gold market

90% of the world's physical gold sales in the international market take place in London through the five bullion banks that make up the gold Fixing. The two Daily Fixes account for the vast majority of these deals, taking place at 10.30 a.m. and 3.00 p.m. London time. Each of the bullion banks has their own clients and does their best to hide their identity from outsiders. But experienced dealers can sense the presence of a central bank in the market.

One of the ways they can tell is by the way the banks deal in gold for them. A central bank does not want to chase prices, so will buy gold offered to it, rather than make a large offer, which may well drive prices up. A Chinese central bank official made the comment some time ago that it is difficult for a central bank to buy gold in the international market. But a central bank will do it if the amount purchased or sold is not sufficient to affect prices. If it is a large amount, then sales or purchases will be spread out over time so as not to affect prices unduly. This may hide the presence of a central bank.

The moment it gets out that a central bank is in the international market prices will rise or fall more than is usual. This is the deterrent to China in particular, which is very concerned with its privacy.

Advantages and Disadvantages of buying internationally or locally

Newly mined gold production is above 2,400 tonnes per annum. The international gold market is the place to source large amounts of gold.

  • Any amounts needed above locally produced volumes must come from this market or direct from refiners such as the Rand refinery in South Africa.

  • Purchasing gold outside a nation requires foreign currency from foreign exchange reserves and not the local currency. With a tonne of gold around $45 million apiece, using local currency can be inflationary [it requires the injection of that currency into the local economy].

  • Where a dealer is able to guard its client's identity and purchase large volumes of gold, central banks will do better to use the London gold market, even if it has local production, for it does not have to wait for the local gold to be available.

  • Buying locally produced gold involves a local producer and the central bank with a price set for each transaction only by reference to international prices no matter how large the volume of gold involved.

  • There is little to no immediate impact on international prices as the international market does not 'see' the transaction. The only way local deals impact international prices is through the absence of that local supply from the international market.

  • Local production is a certain source of supply. When supply is tight in the international market buyers will have to raise prices to bring out additional supplies. Even when international markets have a tight supply situation local production remains on tap to a central bank.

  • In the case of China where local supply is insufficient to supply the retail & institutional market as well as the central bank, central banks can ensure that they manage their purchases well when they buy locally and leave the retail & institutional buyers to get the balance of their purchases from the international markets via imported gold.

As you can see it generally pays a central bank to buy local production if it is there. It is easier, private and more manageable in terms of prices. China in particular appreciates the control it retains over the disclosure of purchases.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules