- 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%.
