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When Central Banks Are Buying Gold, Should We Just Sit And Watch? – Economic Times

When Central Banks Are Buying Gold, Should We Just Sit And Watch? – Economic Times

Release Date:  Friday, November 3, 2017

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Precious metals were down slightly this week as the market digested mixed economic reports on Friday.

“October’s job growth acceleration reinforced the Federal Reserve’s assessment on Wednesday that ‘the labor market has continued to strengthen,’ and probably does little to change expectations it will raise interest rates in December.” (“U.S. job growth speeds up, unemployment rate falls; wages flat.” Reuters  11.3.17)

Other economic news this week centered upon President Trump’s appointment of the next Chairman of the Federal Reserve. The market had a muted reacted to the appointment of Jerome Powell, as the appointment  “signalled [sic] a continuation of her cautious monetary policies.”

"Gold seems to be broadly flat. The announcement of Jerome Powell as the new Fed chair was broadly in line with expectations," (“Gold hits one-week low after U.S. economic data.” Reuters  11.3.17)

Gold ended the week down $2.80, closing at $1,270.40. Silver prices closed at $16.90, down $0.04.

When Central Banks Are Buying Gold, Should We Just Sit And Watch? – Economic Times
Aasif Hirani, Director of Tradebulls Securities, notes central banks are hoarding gold.
“China, Russia and many Asian and West Asian central banks have started accumulating gold. Now that the fashion of hoarding gold is back, let us see the fundamental reasons behind it.

“Recently, a new crowd of gold buyers have emerged. They are Chinese investors. Before 2015, private ownership of gold was restricted. But from 2015, the Chinese government has privatised gold ownership. The official figure of gold holding by the Chinese central bank is 1,842 tonnes, worth $84.45 billion…”

“To prop up their currencies, they have started accumulating gold to boost reserves. Germany brought back the gold reserves it had stored in French vaults. German investors have turned to gold to protect their wealth in the face of loose monetary policy and successive financial crises.
“In 2016, €6.8 billion was ploughed into German gold investment products. Countries like South Korea, Taiwan, Singapore and The Netherlands have all started owning gold.

“Typically, developed countries have 60 per cent gold holdings against their total reserves. India has 6.1 per cent. Currently China’s total foreign exchange reserve in gold holdings is just 2 per cent. For China to raise even 17 per cent gold holdings against its total reserve, it needs to buy an additional $540 billion worth of gold. If it buys a fraction of it from open market, we may see gold prices shoot up to $1800-$1900…”

“But one point cannot be ignored: gold buying by central banks amid limited supply will tighten the gold price situation. This should appreciate gold prices but that would happen in the long term, since short-term gold prices are prone to manipulation by shorting in futures.” (“When central banks are buying gold, should we just sit & watch?” Economic Times 11.2.17)

Gold Holds Little Change As Trump Announces Fed Chair – CNBC
“Gold prices were little changed following the announcement of Jerome Powell as the next chairman of the Federal Reserve.

“The precious metal had pared its gains after touching a two-week high on Thursday, after Republicans in the U.S. House of Representatives unveiled legislation to overhaul the U.S. tax system.

“The dollar fell and U.S. 10-year Treasury yields slid to two-week lows after House Republicans proposed to slash the corporate tax rate to 20 percent from 35 percent and reduce the number of tax brackets for individuals.

‘"There was a slight bit of volatility around the time of the tax cut announcement,’ said Dan Hussey, senior market strategist at RJO Futures in Chicago, adding this caused gold prices to come off their highs.

“Lower bond yields make non-yielding gold more attractive to investors, while a weaker dollar makes bullion cheaper for holders of other currencies…”

“Markets are pricing a 97 percent likelihood of a rate increase in December, according the CME Fedwatch tool, and the pace of subsequent rises could be faster if the Republican tax proposal was enacted and succeeded in speeding economic growth.

“Investors hedging against the stock market possibly overheating also drove gold prices up, said Miguel Perez-Santalla, vice president of Heraeus Precious Metals in New York.” (“Gold holds little change as Trump announces Fed chair.” CNBC 11.2.17)