Gold News

Central Banks' Gold Buying in Spotlight as US GDP Beats Forecasts, Swiss Vote Looms, ECB Argues Over QE

GOLD PRICES fell and then swiftly regained $10 per ounce Tuesday lunchtime in London after better-than-forecast US GDP, trading back at $1200 data as central-bank gold buying policies again came under the spotlight.
 
The world's largest economy grew 3.9% per year in the third quarter, while domestic US prices rose 1.4% – down sharply from Q2's inflation rate of 2.1%.
 
World stock markets cut their earlier gains as the Dollar first jumped and then fell hard vs. the Euro.
 
Ahead of next weekend's Swiss gold referendum – wanting all SNB gold held domestically, with a ban on ever selling again and new buying raising the metal to 20% of central-bank assets – French far-right party Front National has called for the same proposals to be applied at the Banque de France.
 
Ukraine's central bank yesterday said last month's 35% drop in Kiev's reported gold holdings merely  "optimized the composition of international reserves," raising the US Dollar and Euro shares to 70.3% and 15% respectively.
 
Though much smaller, Ukraine had previously been buying gold alongside neighboring Russia for the last two years, adding some 15 tonnes as Moscow acquired 10 times as much to become the world's 5th largest national holder by the time this year's conflict over Crimea and now the Donbass regions broke out.
 
Analysts at Deutsche Bank meantime, prompted by European Central Bank member Yves Mersch's comments on possibly buying gold as part of the ECB's new QE asset purchase scheme, say that "The idea has merit because of the possible sellers.
 
"A program that targeted [private investment gold] holdings...especially in countries like Germany...would liberate dormant liquidity, some of which might even flow into consumption."
 
"The [proposed Swiss] policy is barmy," agrees Financial Times columnist James Mackintosh, "but the idea of buying gold might usefully be deployed by the European Central Bank as the most politically acceptable, if least effective, form of large-scale quantitative easing" because it would appeal to "German conservatives".
 
President of Germany's Bundesbank, and staunchly anti-QE to date, Jens Weidmann yesterday told a convention in Madrid that "While monetary policy can influence short-term demand, it cannot permanently boost growth prospects.
 
"The same is true, unfortunately, for fiscal policy – even if additional fiscal space [ie, borrowing capacity] were available."
 
Bond yields on the debt of several Eurozone members states today fell to new all-time lows on what analysts called "speculation" that the ECB will begin QE at next week's meeting.
 
Reviewing central-bank bullion policies, "Gold's reputation as an inflation hedge, insurance against financial disaster and as a good diversifier...[meant that during the 2008-2012 crisis] the official sector rapidly switched from being a net seller of gold to a net buyer," says a special report from David Jollie at Japanese trading house and London market maker Mitsui Precious Metals.
 
"We still expect central bank buying to be a net contributor to demand for gold in 2015," Jollie adds, but "we suspect that falling oil prices will lower gross purchases next year."
 
Crude oil rose Tuesday, recovering 5% from this month's new 4-year lows as members of the Opec producer nations' cartel met in Vienna to discuss cutting output quotas in a bid to stem further losses.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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