-- Published: Friday, 14 August 2015 | Print | Disqus
- China Preparing for Resumption of Currency Wars and an International Monetary Crisis
- Obama and Kerry Warn Dollar May “Cease To Be the Reserve Currency of the World”
- Remember Bloomberg Intelligence’s $64,000 Gold Price Target?
- Reuters Global Gold Forum Interviews Alistair Hewitt of World Gold Council
- Gold Trade Turns Bullish on China Currency War in Bloomberg Gold Survey
In a surprise announcement, China’s PBOC announced an increase in their gold reserves by 1.1% in July. The People’s Bank of China, now the world’s biggest gold buyer, increased its gold reserves by over 6000,000 troy ounces to 53.93 million fine troy ounces by the end of July from 53.32 million ounces a month earlier, according to data released by the central bank.
Gold and Foreign Exchange Reserves (PBOC)
The country last month ended six years of mystery over how much gold reserves it has been accumulating when it revealed a 57 percent jump in reserves over the 2009 to 2015 period – from 1,054 metric tonnes to 1,658 metric tonnes.
The Chinese gold purchases of 19 metric tonnes was more than double the net monthly average that was bought between 2009-2015. During that six years, the PBOC accumulated around 8.4 metric tonnes per month – over the 72 month period. However, as noted by Jan Harvey in the Thomson Reuters Global Gold Forum we do not know if that PBOC buying was “slow and steady, or in chunks.”
The surprise was not the number per se as many had expected such a number but rather the announcement itself as there was a lack of clarity as to whether the PBOC would announce publicly on a monthly basis through the PBOC or would they do it through the auspices of the IMF as most central banks do.
It is possible that China’s rebuff in terms of not being allowed by the IMF to include the yuan in the basket of currencies that comprise the IMF’s reserve assets that are known as special drawing rights (SDR) may have led to then deciding to become more ‘vocal’ and public about their monetary gold reserves.
China seems likely now to adopt the Russian position and strategy of being very public in announcing their gold reserves as they attempt to position the yuan as an alternative reserve currency to the world’s current reserve currency the dollar. China has overtaken Russia to become the country with the fifth-largest gold reserves in the world.
It is important to remember that this is just the increase in gold reserves of the People’s Bank of China (PBOC). We have long pointed out two other entities, besides the PBOC, have also been buying gold – the State Administration of Foreign Exchange (SAFE) and the China Investment Corporation (CIC).
These potentially sizeable sources of demand are not included in the World Gold Council and GFMS figures.
Therefore, it is likely that the Council and GFMS underestimate global gold demand. It is important to note this lack of transparency regarding total aggregate Chinese central bank and sovereign fund demand.
China appears to be preparing for a coming currency reset, a resumption of currency wars and a likely coordinated devaluation of leading currencies versus gold. They are also likely hedging the increasing risk of financial and monetary uncertainty, volatility and possibly an international monetary crisis in the coming months.
Their yuan devaluation this week gives them an initial competitive advantage ahead of a coming currency reset.
- Obama and Kerry Warn Dollar May “Cease To Be the Reserve Currency of the World”
U.S. Secretary of State John Kerry warned Tuesday the U.S. dollar’s status as the global currency could be threatened if Congress blocks the nuclear deal with Iran.
The nation’s chief diplomat doubled down on President Barack Obama’s comments last week that scuttling the deal would damage the continuing status of the dollar as the reserve currency, a sentiment “already bubbling out there,” Mr. Kerry said.
President Obama was continuing his push for the Iran nuclear deal, gave a speech at the American University earlier in the week, when he warned
“Moreover, our closest allies in Europe or in Asia, much less China or Russia, certainly are not going to enforce existing sanctions for another five, 10, 15 years according to the dictates of the U.S. Congress because their willingness to support sanctions in the first place was based on Iran ending its pursuit of nuclear weapons.
If, as has also been suggested, we tried to maintain unilateral sanctions, beefen them up, we would be standing alone.
We cannot dictate the foreign, economic and energy policies of every major power in the world. In order to even try to do that, we would have to sanction, for example, some of the world’s largest banks. We’d have to cut off countries like China from the American financial system. And since they happen to be major purchasers of our debt, such actions could trigger severe disruptions in our own economy, and, by way, raise questions internationally about the dollar’s role as the world’s reserve currency. That’s part of the reason why many of the previous unilateral sanctions were waived.”
Mr. Kerry, speaking at a Reuters business event in New York, said if Congress prevents the U.S. from implementing the deal it could put the U.S. at odds with European allies, China and Russia.
“That is a recipe very quickly for the American dollar to cease to be the reserve currency of the world,” Kerry warned business leaders at the event.
Those countries helped broker the agreement, and could resist or reject efforts by the U.S. to impose Iran-related sanctions, potentially threatening the U.S. dollar’s status as the global reserve currency, Mr. Kerry said.
Remember Bloomberg Intelligence’s $64,000 Gold Price Target?
Reuters Global Gold Forum interviews Alistair Hewitt of World Gold Council (August 13, 2015)
Global_Gold_Forum Jan Harvey thomsonreuters.com A World Gold Council report showed earlier today that gold demand hit a six-year low in the second quarter, as sluggish price movement and the prospect of better returns in equities curbed interest in the metal. Demand fell 12 percent to 914.9 tonnes, with declines in China and India accounting for nearly half of the drop, the WGC said. Globally, jewellery buying fell 14 percent, investment slid 11 percent, and central bank buying was 13 percent lower.
Global_Gold_Forum Jan Harvey thomsonreuters.com Here to discuss the report in more detail, I’m delighted to welcome Alistair Hewitt, head of market intelligence at the WGC. Welcome, Alistair!
Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Hi Jan, thanks for inviting me.
Global_Gold_Forum Jan Harvey thomsonreuters.com Pleasure to have you with us
Global_Gold_Forum Jan Harvey thomsonreuters.com Overall gold demand fell in Q2, you found, with jewellery buying faring the worst. What were the main drivers of that?
Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Yes, demand was down 12%, reaching its lowest level in six years. Jewellery accounted for around 2/3rd of this fall, especially India.
11:13:42 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com There’s no doubt it has been a tough quarter, but some of the factors affecting demand this quarter can be viewed of as temporary.
11:14:30 Global_Gold_Forum Jan Harvey thomsonreuters.com Why was there such a sharp drop in jewellery buying, particularly in India?
11:14:51 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com There are two factors behind the fall in India, Jan.
11:15:41 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The first is that rural India was affected by poor weather. In Q1 crops were damaged by unseasonably heavy rains and in Q2 crops were damaged by a heat wave and drought conditions. This resulted in slower rural income growth. Weakness in rural India is evident in the sales of motorcycles and tractors. Data indicate demand for both are down sharply.
11:16:24 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Another factor is that there are fewer auspicious days in Q3: there aren’t any between June 11 and November, whereas auspicious days ran up to mid-July last year. Fewer weddings in Q3 affected gold demand in Q2.
11:17:17 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Both of these are temporary factors affecting Q2. H2 will see more wedding-related demand and the current monsoon appears on course to be around average which will support a good harvest and rural incomes. This, in turn, should boost jewellery demand around Diwali.
11:18:24 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The recent price dip is also supporting demand. At the India International Jewellery Show on the weekend manufacturers and retailer both said they were optimistic about demand in H2 picking up. The Indian gold price has also returned to a premia, having spent a much of Q2 at a discount.
11:18:48 Global_Gold_Forum Jan Harvey thomsonreuters.com A question from the floor — “Is data available about India’s gold dore imports over the last quarters comparisons to imports of lbma good delivery goods? Has there been a big shift in trend?”
11:22:09 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Data is available, but have not published it so far. It is a recent trend driven by the import differential between dore and bullion. Looking ahead, this is something we will look to strip out and include in our supply estimates for India which we include in table 9 in GDT.
11:23:59 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com But there has been a big shift. In Q1 2014 there were 5.9t of dore imports, but in Q2 2015 dore imports were 55.8t
11:24:22 Global_Gold_Forum Jan Harvey thomsonreuters.com China remained the world’s biggest gold buyer, but consumer demand there fell too. Has there been any pick-up in demand since the very strong stock market rally of earlier this year reversed?
11:24:59 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The collapse in China’s equity market came a little late to have a significant impact on Q2.
11:25:33 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com But we did see demand pick up after the collapse, and that supported bar and coin demand, which was up 6% on the same period last year, albeit from a low base.
11:25:47 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com And we have seen good activity following the price dip.
11:27:00 Global_Gold_Forum Jan Harvey thomsonreuters.com It was interesting to note the rise in European demand, on the back of concerns over Greece. How did that compare to the demand we saw last time this issue flared up?
11:27:55 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The levels of demand are not as high as they were. In H1 2011 bar and coin demand was 135t. H1 this year it is 106t…. lower, but not significantly so.
11:28:18 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com But we have seen a big pick up on last year. H1 2014 to H1 2015 we have seen 16% growth in European bar and coin demand.
11:29:09 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com And I have probably shared this before – it is a bit of a hobby horse for me! But the European bar and coin markets is one of the biggest in the world. Last year it was just behind India and so far this year it is bigger than both India and China. It is comfortably bigger than the US.
11:30:01 Global_Gold_Forum Jan Harvey thomsonreuters.com How did that demand break down within Europe? Was there much demand actually in Greece, or was there more buying across the euro zone?
11:30:54 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Germany, Switzerland and Austria account for most of the growth (the UK accounts for a little bit too). It was retail investors in these countries looking to protect their wealth.
11:32:30 Global_Gold_Forum Carsten Fritsch commerzbank.com Hello Alistair, I would like to know how physical demand has evolved outside India and China. Coin demand picked up markedly in June in the US at least. Is this visible also in other places apart from Europe?
11:35:05 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com You’re right. The US is the most visible data point. Sales of America Eagles were high in June, and that contributed to US bar and coin demand being up 7% in Q2. And the trend continued. In July American Eagle sales were 170,000 oz, its highest level in two years, as consumers responded to the price drop.
11:36:28 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com We don’t have any data for coin demand in Europe for July, but anecdotally I have heard that mints and bullion dealers have seen brisk trade. …. probably not surprising given the price movements.
11:36:54 Global_Gold_Forum Carsten Fritsch commerzbank.com What about other important markets like Turkey, the Middle East and Australia?
11:38:24 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com We are only part way through the quarter and won’t have full clarity until the quarter end… But I have read positive reports from some of these countries, including from the Perth Mint.
11:39:52 Global_Gold_Forum Jan Harvey thomsonreuters.com Turkish consumer demand fell 50% in Q2. Why did it drop so much?
11:40:29 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com This is largely a function of lira weakness. It has been weak this year and weakened further in Q2 following the election results.
11:41:43 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com That means the local prices are high. Investors there were waiting for lower prices levels before dipping back into the market…. we have seen a little bit of that this quarter, but as I said earlier, we need to wait to the quarter end to properly gauge market developments.
11:42:20 Global_Gold_Forum Jan Harvey thomsonreuters.com There was also weakness in Russia (consumer demand -45%) and the Middle East (-24%) in Q2. Given geopolitical concerns in those regions, are you expecting much of a pick-up in the second half?
11:42:39 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com That’s a good question Jan
11:43:11 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Russia is mostly a jewellery market. In local currency terms gold prices are high and the Russia economy is weaker than it was. I don’t think we will see a pick up there but I fully expect Russia’s central banks to continue to add to its gold holdings.
11:44:03 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The Middle East is interesting . It has suffered because of geopolitical tensions, but the dip in the gold price resulted in an up-tick in demand. Turkey returned to a premium there appears to be an increase in activity in Dubai.
11:44:36 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com And of course there is Iran. The thawing of relations between the US and Iran has resulted in more activity in that gold market and the lower gold price spurred on demand there.
11:45:18 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com One of my contacts said that Bazaar Bozorg (the biggest Bazaar in Iran) was bustling with people and the entire gold industry appeared optimistic following the announcement.
11:45:48 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com It will be interesting to see how H2 pans out.
11:46:41 Global_Gold_Forum Carsten Fritsch commerzbank.com I have another question on China: Do you expect that the latest CNY devaluation will have any impact on Chinese gold demand?
11:47:19 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com I think it will have two effects.
11:48:23 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The first is that local investors will look towards gold to protect their wealth. Gold is used the world over to protect against weak currencies, and I think this will support China’s gold demand.
11:50:02 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com The second is that we have seen more volatility in a major currency. As China’s economy becomes increasingly integrated into the global economy and financial system it will steadily move towards a floating exchange rate.
11:50:29 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com This will add volatility and risk to the financial system and people look to hedge that with gold.
11:51:12 Global_Gold_Forum Jan Harvey thomsonreuters.com Lastly, what’s your outlook for FY demand? How will that compare to 2014?
11:51:57 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com We expect India and China to come in at 900-1,000t and central banks to buy 400-500t. We are expecting good physical demand in H2 and demand to come in somewhere between 4,200t and 4,300t.
11:52:17 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Last year demand stood at 4,220t
11:52:33 Global_Gold_Forum Carsten Fritsch commerzbank.com Do you also expect effects of the CNY devaluation on international gold demand? There is some talk about a currency war.
11:55:44 Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com Yes, I think that plays into my second point above. The internationalisation of the of the CNY will add to global currency volatility and people will look to gold as a hedge against that.
Global_Gold_Forum Jan Harvey thomsonreuters.com Great! Thanks, Alistair. And thank you very much for joining us today.
Global_Gold_Forum Alistair Hewitt (WGC) thomsonreuters.com No problem at all. Thanks for inviting.
Gold Trade Turns Bullish on China Currency War in Bloomberg Gold Survey
Gold traders and analysts are bullish for the first time in five weeks after China devalued its currency and roiled global markets and saw a flight to safety push gold higher. Indeed, the trade turned the most bullish in three months on the yuan surprise.
We were bullish for the first time in many weeks and a higher close this week will make us positive for next week. The Bloomberg Gold survey results for this week were: Bullish: 18 Bearish: 6 and Neutral: 8.
DAILY PRICES
Today’s Gold Prices: USD 1,116.75, EUR 1002.11 and GBP 715.29 per ounce.
Yesterday’s Gold Prices: USD 1,117.35, EUR 1005.54 and GBP 715.56 per ounce
(LBMA AM)
Gold in USD – 1 Week
Gold and silver fell on the COMEX yesterday – down 0.6% to $1,115.20 and 0.7% to $15.41 per ounce respectively.
This morning, gold is 0.4% higher to $1,120 per ounce. Silver is 0.5% higher to $15.60 per ounce. Platinum and palladium are 0.2% and 0.8% higher to $998 and $625 per ounce respectively.
Gold reached a 3 week high yesterday as speculators and investors moved back into gold. Short covering and traders going long was seen on the COMEX and investors bought the most gold through ETPs since June this year.
Gold is headed for the biggest weekly gain in three months after China’s weakening of the yuan roiled markets globally, saw sharp falls in stock markets and led to concern of widespread currency devaluations and currency wars.
Prices remain near a three week high today after China’s PBOC announced that it had bought another 19 metric tons of bullion last month. China has added more than 600 tons of gold to its reserves since 2009 to help diversify its foreign-exchange holdings as it seeks to position the yuan as reserve currency.
China’s decision on Tuesday to devalue the yuan sparked concern that a slowdown in the huge and globally important Chinese economy, now the world’s second-largest, is deepening.
Following the biggest monthly drop in two years, gold has risen almost every day so far in August. Gold is up 2.1 percent since the Friday close, ending a seven-week stretch of losses.
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-- Published: Friday, 14 August 2015 | E-Mail | Print | Source: GoldSeek.com
