Central Bank, ETF and gold coin buying buoy gold price
Central bank gold purchases, ETP holding increases and coin sales all point to a stronger gold price, although a stronger greenback is mitigating rises in US dollar terms.
Posted: Thursday , 22 Nov 2012
LONDON (Mineweb) -
The latest data from the IMF shows that Central Banks are continuing to accumulate gold with some 40 tonnes purchased in October keeping purchases on track to match last year’s 456 tonnes of net purchases. Key buyers were Brazil, which took on 17.2 tonnes, pushing its gold reserves to their highest in 11 years, Kazakhstan with 7.5 tonnes and Turkey with 17.5 tonnes (although this is slightly anomalous in that Turkey is now accepting gold in its reserve requirements from commercial banks – a change in status implemented earlier this year). Russia too continued to gradually grow its reserves (by 0.4 tonnes in October).
On the negative side of the equation, Germany, the world’s second largest holder of gold in official reserves after the U.S.A. , reduced its holdings by 4.2 tonnes, but this is believed to be a transfer from its reserve to the country’s Finance Ministry for the minting of gold coins – according to a spokesperson for the Bundesbank some 7 tonnes a year is set aside for this purpose.
So, for the first 10 months of the current year, Central Bank gold holdings have increased by some 414 tonnes which suggests that last year’s total purchases by Central banks could well be matched, or even exceeded, this year. Earlier in the year the World Gold Council had predicted the year’s Central Bank purchases to come in at around 490 tonnes and a similar level to October’s increase in the final two months of the year would be right on line with this forecast – although the slightly anomalous Turkish situation does not make this year’s and last year’s increases directly comparable.
But it is not only Central Banks which are seeing rises in gold holdings. According to a Bloomberg report this week, holdings in gold Exchange Traded Products (ETPs) have risen to a record 2,605.318 tonnes, boosted particularly by a 49% rise in Soros Fund Management’s holding in the largest gold ETF, SPDR Gold Trust, to 1.32 million shares as of September 30, although this remains a relatively small holding compared with Paulson & Co.’s 21.8 million shares in the same fund. Meanwhile another mega investor, Louis Moore Bacon’s Moore Capital Management reportedly acquired 1.8 million shares in the Sprott Physical Gold Trust during the last quarter. The fact that these big investment funds remain invested in gold bullion related products is a sign that safe haven holdings in gold by the mega-rich remain a key part of their investment strategy in the light of current global economic uncertainty.
However to counter these purchases, Touradji Capital Management, Lone Pine Capital and Third Point LLC all reduced their SPDR holdings in the quarter, although even in combination these sales do not match the Soros purchase alone.
Meanwhile gold coin sales in the U.S. appear to be surging again. According to its latest figures the U.S. Mint has sold 67,000 ounces of gold coins in November so far putting it on track to sell over 100,000 ounces in the full month, which compares with only 59,000 ounces in the whole of the previous month and well over double last November’s sales figures.
There are also indications that Indian purchases for Diwali and Dhanteras have been picking up well and that Chinese demand is also resurfacing at a high level – although it remains a moot point whether China has actually exceeded India as the world’s largest consumer of gold yet. Some reports say it has, others say not yet. Perhaps we’ll need to wait for year-end definitive statistics to find out.
Silver investment has also been picking up alongside gold, although the huge short positions on COMEX, reportedly largely held by JP Morgan, make for continued nervousness among some potential investors in gold’s more volatile sibling. Even so silver exchange-traded fund holdings reached a record high of 606.2 million ounces last week, which is also a new record.
In the light of the apparent increases in gold and silver investment it is perhaps surprising that metal prices have not been rising higher, but in dollar terms in which most are largely quoted and viewed, they are being suppressed to an extent by the dollar's relative strength against other currencies. Indeed in some currencies the gold price at least is at or around record highs, but still well short of the $1900 plus level in US dollars reached a little over a year ago. A number of analysts, though, believe this level in U.S. dollar terms may well be reached again sooner rather than later.
Currently trading is somewhat subdued ahead of the U.S. Thanksgiving holiday and we may have to wait until next week to see any definitive price pattern emerging.