Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Uncertainty Drives Central Bank Gold Purchases

Commodities / Gold and Silver 2016 Nov 10, 2016 - 05:11 PM GMT

By: GoldCore

Commodities

Dedollarization and Uncertainty drive Central Bank Demand for Gold

  • Central banks added 81.7t to their gold reserves in the third quarter
  • Total central banks purchases in the year-to-date reach 271.1t.
  • Fellow-SCO member Kazakhstan and Belarus also had to holdings
  • 90% of reserve managers intend to increase or maintain gold reserves.
  • “The case for gold remains compelling for reserve managers” state WGC
  • Unconventional monetary policies will underpin gold demand in coming years.

Central banks added 81.7t to their gold reserves in the third quarter, bringing total purchases in the year-to-date to 271.1t. This was a fall from 168t purchased in the previous quarter. Much of this has gone unnoticed by the mainstream media, something which seems shortsighted given the monetary and geopolitical implications both this and recent elections results may lead to.

The World Gold Council described recent buying as a ‘more measured’ approach to previous years. Between Q3 2014 and Q3 2015 407.7t were purchased by central banks. The data was slightly skewed last year as China contributed their gold reserve data for the first time since 2009.

Gold buying will not stop

The World Gold Council and other mainstream analysts do not appear unduly worried about the fall in gold demand from central banks. The current geopolitical and economic environment provides an irrefutable argument for central banks, as well as investors, to hold gold.

“The case for gold remains compelling for reserve managers amid the prevalence of negative interest rate policies and diversification away from the US dollar” WGC, Q3 report.

Commenting in the aftermath of the US election Juan Carlos Artigas, director of the WGC’s investment research, drew attention to the politics of anger and argument that are playing out across the world stage, signalled by both Brexit and the US election result.

“This trend, combined with uncertainty over the aftermath of years of unconventional monetary policies measures, will firmly underpin investment demand for gold in the coming years,”

This was reflected in a recent WGC survey of 19 central bank reserve managers which found nearly 90%have plans to either increase or maintain their gold reserves at current level.

In a research note from Simona Gambarini of Capital Economics, he argues that “the case for gold as a reserve asset remains strong”, given around one third of global government debt now has negative yields:

In particular, we continue to expect central banks from developing economies to be the main source of demand from the official sector in the future, as they typically have much lower gold holdings as a percentage of total reserves compared to those in advanced economies.

However, for some whilst there is an air of uncertainty following political events of 2016 and a tricky economic environment, this is not enough for central banks to add more gold to their reserves. In a recent note Nell Agate, a Citi analyst, stated ”While negative real interest rates and low sovereign bond yields across several key currencies and countries may encourage inflows into gold, particularly as there are limited alternatives for safe-haven / reserve assets, we expect to see reserve holdings maintain current trends.”

Russian love for gold

Those central banks who we have become used to seeing purchase gold on an ongoing basis continued to do so – Russia (43.9t), China (15.2t) and Kazakhstan (10t). Belarus also added over 3t to their reserves.

The Central Bank of Russia has outpaced the PBOC by nearly 150t in the last seven years, and has been the world’s largest central banks buyer of gold reserves for some time. This trend is expected to continue. Earlier this year it indicated that over the next 3-5 years it will look to expand its holdings to some half a trillion dollars.

This push for more gold is now driving the Russian supply chain. In May 2015 Russian Central BankGovernor Elvira Nabiullina stated that she saw no need for the Russian government to buy up all domestic gold production (as is done in China) as the central bank’s gold demand could be satisfied on the open, international market. However, F. William Engdhal reports that so central is gold to the monetary policy that the Central Bank is now buying from domestic mining stocks to satisfy their demand. This is particularly notable given Russia is the world’s second largest gold producing nation.

‘Dedollarization’ drives the SOC’s love for gold

When looking at the top gold buyers, one must remember that Russia and China are the key members in the Shanghai Cooperation Organization (SCO). The project includes former Soviet Union states as well as India and Pakistan.

The aim of the 16 year old organisation is to unite those nations in the face of increasing American expansionism. The group has discussed trade, a new currency and a unified energy system. The currency is what has many people nervous.

At a time when Russia is often declared a failed state by the US, the fact is that their economy is, in some ways, in far better shape. Namely their very low debt-to-GDP ratio and movement towards a ‘good as gold’ currency.

As of October the Central Bank of Russia held $88.2 billion in Treasurys, a significant change from the $131.8 billion held in 2014. This move has been labelled as dedollarization, and it is thought that this process is funding gold purchases as the country moves to prop up its reserves as the Russia ruble has suffered hugely since the collapse in crude oil. Not to mention lines to cheap credit were cut thanks to US and European sanctions and inflation is well into double figures.

“Notably, the Russian central bank has been selling its holdings of US Treasury debt to buy the gold, de facto de-dollarizing, a sensible move as the dollar is waging de facto currency war against the ruble,” writes F. William Engdahl.

That Russia feature so prominently in gold buying statistics is of no surprise. As Goldcore reported last year, Russia has made no secret of its desire to hold gold, and to increase their reserves.  Monetary policy manager Dmitry Tulin stated, “The price of it swings, but on the other hand it is a 100 percent guarantee from legal and political risks.”

Take control of uncertainty with gold

Yesterday we saw the price of gold surge 5% on the back of Trump’s ‘surprise’ victory in the US elections.

Much of this was driven by the uncertainty that an inexperienced President would bring. This morning the markets have largely recovered from the shock, however macroeconomic, systemic, geopolitical and monetary risks remain heightened. This is something that the Russians, along with China and their allies are all too aware of.

Their moves to diversify into gold and to keep the safe haven central to their monetary policy is something that should be a lesson to investors. The idea that gold offers a ‘100% guarantee’ is alluring in a world that is being influenced by a politics of anger and economy of instability and uncertainty.

7RealRisksBanner

Gold Prices (LBMA AM)

10 Nov: USD 1,280.90, GBP 1,034.07 & EUR 1,175.48 per ounce
09 Nov: USD 1,304.55, GBP 1,050.42 & EUR 1,176.84 per ounce
08 Nov: USD 1,284.00, GBP 1,034.26 & EUR 1,162.02 per ounce
07 Nov: USD 1,286.80, GBP 1,036.13 & EUR 1,162.50 per ounce
04 Nov: USD 1,301.70, GBP 1,042.79 & EUR 1,172.57 per ounce
03 Nov: USD 1,293.00, GBP 1,040.61 & EUR 1,165.90 per ounce
02 Nov: USD 1,295.85, GBP 1,056.51 & EUR 1,169.76 per ounce

Silver Prices (LBMA)

10 Nov: USD 18.75, GBP 15.11 & EUR 17.20 per ounce
09 Nov: USD 18.81, GBP 15.12 & EUR 16.96 per ounce
08 Nov: USD 18.26, GBP 14.72 & EUR 16.54 per ounce
07 Nov: USD 18.22, GBP 14.67 & EUR 16.47 per ounce
04 Nov: USD 18.30, GBP 14.65 & EUR 16.48 per ounce
03 Nov: USD 18.07, GBP 14.50 & EUR 16.32 per ounce
02 Nov: USD 18.54, GBP 15.05 & EUR 16.70 per ounce

This update can be found on the GoldCore blog here.

IRL
63
FITZWILLIAM SQUARE
DUBLIN 2

E info@goldcore.com

UK
NO. 1 CORNHILL
LONDON 2
EC3V 3ND

IRL +353 (0)1 632 5010
UK +44 (0)203 086 9200
US +1 (302)635 1160

W http://www.goldcore.com/uk/

WINNERS MoneyMate and Investor Magazine Financial Analysts 2006

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: Past experience is not necessarily a guide to future performance. The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. GoldCore Limited, trading as GoldCore is a Multi-Agency Intermediary regulated by the Irish Financial Regulator.

GoldCore is committed to complying with the requirements of the Data Protection Act. This means that in the provision of our services, appropriate personal information is processed and kept securely. It also means that we will never sell your details to a third party. The information you provide will remain confidential and may be used for the provision of related services. Such information may be disclosed in confidence to agents or service providers, regulatory bodies and group companies. You have the right to ask for a copy of certain information held by us in our records in return for payment of a small fee. You also have the right to require us to correct any inaccuracies in your information. The details you are being asked to supply may be used to provide you with information about other products and services either from GoldCore or other group companies or to provide services which any member of the group has arranged for you with a third party. If you do not wish to receive such contact, please write to the Marketing Manager GoldCore, 63 Fitzwilliam Square, Dublin 2 marking the envelope 'data protection'

GoldCore Archive

© 2005-2022 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