Strong Russian gold reserve increases back

In its latest announcement, the Russian Central Bank has stated that its gold reserves rose from 48.4 million ounces to 49.1 million ounces during August. This increase of 700,000 ounces – 21.77 tonnes – is the largest monthly increase this year and brings Russia’s total gold reserve increase so far this year to end August to 113 tonnes according to this latest announcement and World Gold council figures for the prior seven months.  Over the same period of 2015 the Russian central bank added 109.15 tonnes, after a hiatus at the start of the year, so it has been adding to its reserves at a broadly similar overall rate in 2016 so far.  Last year it should be noted that it upped its gold reserve additions quite substantially in the final four months of the year to an average of 24.2 tonnes a month, compared with an average of 13.64 tonnes a month over the first eight months of the year.

We had been suggesting in previous articles that the pace of central bank gold buying might be slowing down, given the low purchase levels by Russia in May and July, and a big reduction in announced Chinese purchases too, given that these two nations are about the only two whose central banks have been adding to their gold reserves in a significant manner.  Relative to its own gold reserves, Kazakhstan has also been increasing its gold holdings at an important rate, but at only around 3 tonnes a month.  But the latest Russian figure suggests we may have been premature in this assessment, at least as far as that country is concerned.  We shall have to wait another week or two to find out whether China too is reverting to earlier gold reserve increase levels, or is continuing at the slower pace seen in recent months.

On the other side of the equation – central bank gold sales – the principal seller has been Venezuela which has seen its gold reserves reduce by around 100 tonnes since the beginning of December last year.  However it does not appear to have sold any gold in July and August this year according to Swiss gold import statistics given the country’s gold sales so far appear to have been routed through the BIS in Basel, although one cannot rule out further sales during the remainder of the year.

Depending on China’s announced official purchases in the final few months of the year, perhaps our estimate of net central bank gold purchases for the full year of around 350 tonnes could prove to be an underestimate, but only if Russia continues to add at the higher rate, Chinese purchases start to pick up again and Venezuela manages to hold on to most of its gold despite its dire economic situation and global debt position.

Article first published by me on sharpspixley.com website

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Thoughts on Brexit likelihood and big decline in Central Bank buying

Two articles published by me on info.sharpspixley.com, the first of which looks at the possibility of Brexit and although polls look to be showing a swing to the ‘Remain’ option they are still too close to call and the result may come down to whichever side is most successful in getting their voters out.  See:

Brexit loses momentum. Gold drops. But it ain’t over yet!

The second article examines latest Central Bank statistics which have seen a huge slowdown in May with the Chinese Central Bank apparently buying no gold at all, and Russia buying only 3.1 tonnes.  Given that China and Russia were, by a huge amount, the principal buyers of gold over the past year for their respective central banks a continuation of such a slowdown means the the specialist precious metals consultants’ estimates for Central Bank gold buying this year, a significant part of prospective gold demand, may prove to have been hugely over-estimated.  However to counter this purchases into the gold ETFs have been far higher than estimated.  Swings and roundabouts!  See:

 Central Bank gold buying slipping back, but ETF demand compensating

Gold following rising Euro; silver looking stronger again

The New York gold price closed Monday at $1,078.20 from $1,065.90 up $12.30 on the day.  In Asia, prices held there with London holding slightly below that level with the dollar index falling slightly to 98.26 down from 98.70. The euro rose to $1.0938 up from $1.0869 on Monday against the dollar. The London a.m. LBMA gold price was set at $1,077.00 up from Monday’s $1,071.15 up $5.85.  The euro fixing was €984.64 down from Monday’s €985.96. Ahead of New York’s opening, the gold price was trading at $1,078.00 and in the euro at €985.42.  

The silver price in New York closed at $14.26 up 16 cents. Ahead of New York’s opening the silver price stood at $14.28.

Price Drivers

Monday saw a seller of 2.976 tonnes from the SPDR gold ETF and a sale of 1.55 tonnes from the Gold Trust amounts that did prevent the gold price from breaking up through $1,080 on the day. The holdings of the SPDR gold ETF are now at 645.939 tonnes and at 154.32 tonnes in the Gold Trust. COMEX remains massively short, but must be getting nervous.

The dollar index remains below 100 at 98.47 still not attacking the 100 level. Against the euro it has fallen to $1.0911 down from $1.086. We see these levels pleasing the U.S. Treasury and the Fed and confirm that the dollar will not be allowed to rise further than to somewhere around $1.05 – $1.07, despite the interest rate differentials. With the euro continuing to rise we expect this rise to feed through to the gold and silver prices again today.

Today and the rest of the week is important for gold and silver as the currency world struggles with the exchange rate ‘battles’ for competitive advantage. Now it appears that the dollar will join the battle as the U.S. holds the dollar down. Nothing could be more positive for gold and silver as it signifies the end of any global unity on how to value a currency. Whilst the U.S. has tolerated the massive decline of the Yen and the euro over the last two years, it is disturbed by the fall of the Yuan. We expect the Yuan to fall quite a bit further. The narrowing spread on the Yuan indicates growing liquidity for the Yuan in international markets.

Russia, China and Kazakhstan continue to add to their gold reserves each month totaling more than 40 tonnes a month. All three take the local gold production into their gold reserves paying their local currencies to the miners, based on the dollar price, which is the most sensible way to do this. However, it does reduce the amounts of gold available to the open market.

The silver price is, once again looking strong over $14.00.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.comand www.silverforecaster.com

Is gold demand/supply balance crunch already here?

We are indebted to Nick Laird (www.sharelynx.com and www.goldchartsrus.com)  for the fascinating chart reproduced  below which shows the cumulative gold demand from China and India (represented by SGE withdrawals for the former and gold imports for the latter) which demonstrates in graphical form just how much gold these two Asian giants have been accumulating over the past seven years.  Note specifically the lower chart section month-by month figures, which also shows global gold new mined production, which demonstrates that since the start of 2013 monthly gold demand from the two nations on their own has exceeded global production on no less than 10 monthly occasions – and sometimes very comfortably so. Overall it suggests that China and India between them are accounting for virtually all gold’s new mined supplies.

chindia full

The chart also shows the inexorable rise of China’s gold consumption to overtake India in 2013 as the world’s leading gold consumer – India had held this position for many years beforehand.  It can be seen how Indian imports fell away so sharply during 2013 when the then Indian government imposed significant gold import duties and introduced other measures to try and control the very substantial gold flows into the nation to counter the significant effects Indian gold imports had been having on its Current Account Deficit.  It may be seen though that since last year Indian gold imports have been beginning to pick up again despite the 10% import duty imposed.

Given that China and India are not the only net gold consuming nations – the World Gold Council suggests around 545 tonnes was consumed by other nations last year – and that some central banks, notably Russia and Kazakhstan, have been taking gold into their reserves month in, month out amounting to 477 tonnes last year and one may well ask where all this gold is coming from.  Scrap will account for most of this.  Overall, scrap supply last year was largely balanced out by the central bank purchases plus other nations’ demand.   But scrap supplies have been falling along with the gold price and if China and India keep on absorbing gold at the current rate. Then demand will be exceeding apparently available supply so where will this come from?  ETFs could be a source, but at the moment sales out of and purchases into these seem pretty much in balance.

Ed Steer in his Gold and Silver Daily newsletter www.caseyresearch.com/gsd   says that any balance o f global demand over supply must be coming out of Central Bank vaults as the only other available unaccounted-for source.  It is hard to disagree with this suggestion but this would presumably be in leased gold which enables the banks to keep it in their books, although in reality the chance of this ever being repaid as bullion look increasingly slim, given the physical gold flows into firm eastern hands.

With the overall trend of gold accumulations by China and India together continuing to rise alongside incomes and middle class growth, we have to be getting pretty near the crunch point at which there is a serious shortage of available physical gold – some think we are there already.  Whether gold prices can be controlled at current levels under these circumstances will become increasingly difficult.  And with China in particular seeking to tie down more gold supplies through Chinese company acquisitions of, and major stakes in, other gold producers outside their own country and creating gold-positive initiatives like its proposed $16 billion ‘Silk Road Gold Fund’ it’s hard to see the gold price being held down within its current trading range much into the future.