Gold News

Gold Bullion Hoarded by Russia, Shed by GLD Ahead of "Dovish" Fed FOMC Decision

GOLD BULLION prices in London's wholesale market fell near 3-week lows Wednesday as world stock markets and commodities rose ahead of today's US Federal Reserve decision.
 
Silver was firmer, bouncing above last week's closing level at $17.20 to cut the Gold/Silver Ratio of relative bullion prices to a 2-week low beneath 71.
 
"Consensus is the FOMC will abolish its QE program but not elaborate on forward guidance" over raising interest rates in 2015, says Swiss refining and finance group MKS.
 
"Any changing in the wording of the [Fed] statement to suggest later rate hikes will benefit gold and vice versa."
 
"In general," repeats today's note from the commodities team at Standard Bank, "the broader financial markets expect a dovish [Fed statement] today. 
 
"We believe that precious metals are also pricing a dovish FOMC...As a result, either the outcome is a non-event, or the risk lies to the downside if the FOMC is less dovish than anticipated."
 
Shedding another 2 tonnes Tuesday, the giant SPDR Gold Trust (NYSEArca:GLD) – the world's largest exchange-traded fund by value at its 2011 peak – was today on course for its biggest monthly outflow of 2014 to date.
 
Losing over 26 tonnes so far in October – some 3.4% of the bullion needed to back its shares at the start of the month – the GLD shed a monthly average of 46 tonnes during the 2013 price crash, then equal to 4.3%.
 
The Russian state, meantime, boosted its gold bullion reserves at the fastest pace last month since its local-government debt default of 1998, Bloomberg reports.
 
Now the world's 5th largest state-owned bullion reserves, Russia grew its gold holdings by 37 tonnes in September to 1,150 tonnes – the largest level since 1993, and equal to 9.1% of the former Soviet state's total foreign exchange reserves.
 
Current president Vladimir Putin set a 10% target in 2006 when first in the Kremlin.
 
"The Swiss National Bank [in contrast] has the liberty of deciding how much gold to hold," notes French investment and bullion bank Societe Generale analyst Robin Bhar today.
 
But next month's Swiss gold referendum – what Bhar calls "a tail risk" for otherwise falling prices – could change that, forcing the SNB to hold 20% of its assets in gold bullion.
 
"If the referendum passes, the central bank would likely buy over a multi-year period," says SocGen's Bhar, forecasting perhaps 2,800 tonnes of new demand at prices of $1000 per ounce, or only 1,500 tonnes at $1500.
 
"I can honestly say the Swiss gold vote is giving me sleepless nights," said Swiss National Bank board member Fritz Zurbrügg to Aargauer Zeitung today.
 
If the initiative is passed, "We will be limited in our monetary policy and our credibility will be damaged."

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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