Russia and surprisingly the Netherlands were the largest central bank buyers in December – accumulating a significant 30.34 tonnes between them as currency wars intensify.
Demand for gold as a diversification and monetary asset continues to be very robust and central banks remain net buyers of gold which should be supportive of prices.
The Netherlands, which has the ninth-biggest gold reserves, raised its bullion holdings for the first time in 16 years. It added 9.61 tonnes to bring total gold reserves to 622.08 tonnes.
Russia raised its gold reserves for a ninth straight month in December as the country continued its multi month gold buying spree, adding to the fifth-biggest gold holdings in the world, data from the IMF showed yesterday.
Russia continues to dollar cost average into gold and increased its bullion holdings by another hefty 20.73 tonnes to 1,208.23 tonnes in December.
The December figure for Russia, who have the fifth largest reserves in the world, brings their officially stated reserves to 1208.23 tonnes. If this trend were to continue their officially stated reserves would increase 20.6% this year.
Given that Russia perceives itself to be under financial and economic attack from the West, there is the possibility that they are accumulating more gold than they are declaring officially to the IMF.
This is what the People’s Bank of China (PBOC) has been doing in recent years and there is little reason why Russia may not adopt the Chinese practice of not being transparent in this regard.
The Chinese government have been surreptitiously accumulating vast quantities of the metal in recent years and there is no reason to believe this buying will end in the coming months as geopolitical and monetary risks intensify.
Western central banks seem to be balking at what will be seen as the disastrous policy of dumping the gold owned by their populations onto the market. The Gold Anti Trust Action Committee (GATA) have documented how this was done in order to suppress gold prices, in a bid to support and maintain faith in the dollar as reserve currency.
Already there are strong movements across Europe to have sovereign gold stored domestically. The German and Dutch central banks have recently reported the repatriation of large volumes of their gold being held by central banks of foreign nations.
It is worth bearing in mind that both these countries are on the record as having drawn up contingency plans in the event of the failure of the Euro.
The Netherlands added 9.61 tonnes to it’s official holdings in December, on top of the 122 tonnes of gold they shipped home from New York in November. This represents the first increase in their official reserves since 1998. The Dutch central bank’s holdings have been unchanged since late 2008.
This further undermines the notion that the gold repatriation was simply a “routine measure to instill public confidence in the ability of the central bank to manage crises.”
It would appear the Dutch central bank has greater concerns than public confidence and may be actively preparing for the fall out from the ECB’s QE programme – a programme to which they were opposed – and or a default by Greece, Spain, Portugal or Italy.
Among the many factors that may have motivated the Dutch central bank to buy gold may have been a shot across the bows to the ECB to remind them that the Netherlands is equipped and prepared to revert to the guilder, should Mario Draghi in the ECB go too far in terms of QE and the debasement of the euro.
It may also signal that they are concerned as to whether they will be able to repatriate the rest of their gold reserves.
This is an important development as it is the first time to our knowledge that a western central bank has actually purchased gold in volume since before the launch of the Euro. While the central banks of China, Russia and ex Soviet states have been acquiring the precious metal hand over fist since the dress rehearsal crisis of 2008, western central banks gold reserves have remain unchanged – officially any way.
The gold repatriation movement represents a turning of the tide with regards to attitudes towards central bank omnipotence in managing paper currencies.
The Dutch purchase is noteworthy and it will be important to keep an eye on their demand in the coming months to see if this was a once off or the start of a trend of the Dutch central bank and other western central banks buying gold.
The announcement will likely spur other central banks to take precautions and acquire gold.
Richard Russell – the godfather of financial newsletter writers – has recently made a stunning assertion about the gold markets. The 91 year-old, who lived through the great depression and fought in World War II, is very gentle and humane in his writing. He is not given to bouts of sensationalism.
In his most recent Dow Theory Letters he suggests that physical gold may not be available to buy at anywhere near current prices within the next year.
“There is a giant secret stirring under today’s market. China, India, Russia and almost every central bank is buying physical gold. I’m guessing that within another year, physical gold will be swept off the market.”
We have long contended that this would likely materialise given the scale of the current crisis and the very small size of the physical gold market globally. The purchase of 30 metric tonnes of gold in one month is a lot of physical gold as there is only some 170,000 metric tonnes of above ground gold.
However, in dollar, pound or euro terms it is tiny. 30 metric tonnes of gold is only worth some $1.24 billion or less than one day of ECB QE and a tiny fraction of the value of stock and bond markets today and indeed of global foreign exchange reserves.
The smart money will continue to follow the Russian central bank example of gradually accumulating gold and dollar, euro or pound cost averaging into an allocated and segregated physical gold position.
Comprehensive Guide to Currency Wars: Bye Bye Petrodollar, Buy, Buy Gold
MARKET UPDATE
Today’s AM fix was USD 1,279.00, EUR 1,132.96 and GBP 848.48 per ounce.
Yesterday’s AM fix was USD 1,282.75, EUR 1,141.54 and GBP 854.60 per ounce.
Gold fell $13.30 or 1.03% to $1,280.40 per ounce yesterday and silver slid $0.41 or 2.24% to $17.89 per ounce.
Silver in US Dollars – 5 Years (Thomson Reuters)
Gold in Singapore for immediate delivery was nearly unchanged at $1,282.55 an ounce in the evening.
Singapore, premiums have dropped to 70 cents to $1 an ounce, compared with $1.20 earlier this month. In Hong Kong, premiums were at 50-70 cents an ounce, down from $1 two weeks ago.
In London, spot gold hit $1,281.46 an ounce in early morning trading. The gold price is down with profit taking following the Greek elections and ahead of the Fed meeting starting today.
European finance ministers are meeting to consider how to prevent a Greek default. It was communicated that they want to work with new leader Alexis Tsipras, as long as he relinquishes his demands for a debt writedown.
Further turmoil in markets, sluggish global growth, ECB QE and the risk of a new Eurozone debt crisis are all bullish for gold and silver’s outlook.
Gold bullion shipments from Hong Kong to China dropped 32 percent in 2014. Chinese imports from Hong Kong were 750 metric tons last year down from 1,108.8 tons in 2013, data from the Hong Kong Census and Statistics Department showed.
Hong Kong gold export data to China gets less relevant by the month and a better benchmark for Chinese demand is now SGE withdrawals which are running at a healthy clip – both in 2014 – and so far in 2015
Chinese demand remains very robust as seen in the more than 130 tonnes of SGE withdrawals in the first two weeks of the year.
The World Gold Council said in April that its long-term Chinese demand outlook remains intact as store of wealth demand is expected to expand to at least 1,350 tons by 2017 amid rising wealth. Mainland demand was a record 1,275.1 tons in 2013, the council said in November.
China’s central bank cut interest rates for the first time in two years in November and the government accelerated the approval of infrastructure projects to spur growth, fueling a 53 percent gain in the Shanghai Composite Index last year. Gold may benefit if investors pull back from the world’s best-performing stock market in 2014, according to UBS.
While the world’s second-largest economy expanded 7.4 percent last year, the slowest pace since 1990, the global flow of gold from West to East will probably last for as long as two decades, the China Gold Association (CGA) said in June.
Silver for immediate delivery climbed 0.3 percent to $17.98 an ounce. Platinum was unchanged at $1,254.28 an ounce while palladium retreated 0.5 percent to $786.75 an ounce.
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