Central Bank Gold Purchases Increase As Sweden Enters Currency Wars

By: GoldCore

- Official central bank purchases rose 17% in 2014

- Russia and Kazakhstan dominate purchases

- No official figures for China since 2009 – massive volumes pass through Shanghai

- Sweden’s Riksbank announces negative rates and QE

Central bank gold buying surged another 17% last year as countries outside of the Western hemisphere continue to stockpile the only currency with no counterparty risk.

Russia was by far the largest buyer. Its purchases made up a staggering 36% of total central bank buying. In total, central banks bought 477 tonnes of the precious metal last year of which 173 tonnes flowed into Russia, according to a report from the World Gold Council.

Interestingly, Kazakhstan – Russia’s main partner in the Eurasian Economic Area (EAEA) – was the second largest central bank buyer last year, having acquired 48 tonnes.

The Kazakhstan government has imposed a ban on exporting gold and its central bank has been buying up every ounce produced in the country for the past two years.

That Russia should be acquiring gold at such a pace while its economy experiences severe stress due to sanctions and low oil prices demonstrates how Russia views gold as a vital strategic asset. This, coupled with Kazakhstan’s enthusiasm for gold, leads us to wonder if gold might form the foundation of a currency agreement within the EAEA.

Notably absent from the WGC report is the presence of The People’s Bank of China in the gold market. China have not made their official holdings public since 2009. It has been speculated -based on figures out of Hong Kong – that Chinese appetite for gold is being sated.

However, figures from the Shanghai Gold Exchange (SGE) – which is rapidly overtaking Hong Kong as China’s main gold hub and which only deals in physical gold – tell a different story. In recent months enormous volumes have been passing through Shanghai.

Last month alone, 255 tonnes of gold passed through the SGE. It is likely that the PBOC were among its customers.

While central banks to the east of Europe are looking to bolster their reserves with tangible wealth, their western counterparts continue to debase their currencies with no contingency plan for a currency crisis.

The Swedish Riksbank became the latest central bank to enter the currency wars yesterday when it announced that it is reducing its key rate from 0% to  -0.10%. It will also begin it’s own bond buying program, buying 10 billion kronor of government bonds.

Sweden is the sixteenth country to cut rates this year. It claims to have made the move to combat deflation and is aiming for an inflation rate of 2%. It is widely believed that it is devaluing its currency to boost exports.

Denmark, cut its key rate to -0.75 on February 5th matching the Swiss. Denmark is trying to maintain its peg to the euro in order to protect its own export industry, an effort which cost it 106.3 billion krone in January.

Denmark has lowered its rates four times this year to try to stem excessive demand for the krone following the SNB’s capitulation last month which came about due to fears that defending the peg to the euro would bankrupt the country following the initiation of the ECB’s QE program.

Sweden’s move is likely to put pressure on Norway to follow suit to protect its exports given the large amount of trade among the Scandinavian countries. The Bank of England is also considering a rate cut.

The race to the bottom continues unabated in the currency wars. When they reach their logical conclusion it will be gold that is the last man standing.

MARKET UPDATE

Today’s AM fix was USD 1,225.75, EUR 1,073.10 and GBP 795.84 per ounce.
Yesterday’s AM fix was USD 1,225.25, EUR 1,080.75 and GBP 803.13 per ounce.

Gold rose 0.19 percent or $2.30 and closed at $1,222.00 an ounce yesterday, while silver climbed 0.42 percent or $0.07 closing at $16.86 an ounce.

Gold began inching forward again in its second session amid a weaker greenback. Greece is meeting with the IMF, the ECB and the European Commission today about a compromise on the bailout deal which expires on February 28th. However, the yellow metal still looks set to close down for its third straight week.

The U.S. dollar took a beating after poor U.S. retail sales and a surprise in jobless claims supported gold. The impending U.S. rate hike is still the elephant in the room that is limiting gold’s gains.

This bearish stance was seen in the world’s largest gold ETF, SPDR Gold Trust, which saw its holding drop 0.23 percent to 771.51 tonnes yesterday.

Demand in Asia is robust ahead of Chinese New Year and is still supporting the yellow metal. Shanghai Gold premiums traded at $3-$4 per ounce today.

While, Indian gold prices were at a premium of $2-$3 an ounce over the international benchmark on strong jewellery demand, compared with discounts last month.

Gold in London in late morning is trading at $1,225.03 an ounce up 0.12 percent, silver is $16.88 per ounce up 0.7 percent and platinum is $1,198.94 per ounce up 0.3%.

This update can be found on the GoldCore blog here.

Mark O'Byrne

Director

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

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