Gold News

Gold 'Being Tested' Ahead of US Fed as Germany's No.2 Insurer Adds Physical Cash to Bullion

GOLD PRICES held near 2-week lows beneath $1230 per ounce Wednesday morning as the Dollar rose but equities and government bonds fell ahead of today's US Fed interest-rate decision.
 
Munich Re, the second-largest insurance company in Germany, said it has begun vaulting a small quantity of physical cash to avoid the European Central Bank's negative interest rate policy, adding banknotes to the physical gold bullion it already holds.
 
"The gold sell-offs in recent months were predicated on a string of four [US Fed] rate rises in 2016," notes the precious metals team at global investment and bullion bank HSBC.
 
"[Today's] most likely outcome," HSBC says, "is for the wording in the policy statement to change sufficiently to weigh on any knee-jerk rally" in gold prices after the Fed delays raising once more.
 
"Either way, we believe the rally is being tested."
 
"Another rate postponement," reckons analyst Ed Meir at US brokerage INTL FC Stone, "will erode the Fed's credibility and portray the central bank as being hopelessly behind the curve."
 
"Negative as the market looks now, we still would not advocate selling gold heading into the Fed meeting, since there is a good chance of a very whippy session that could come back and bite the shorts."
 
"Financial markets are turbulent, productivity growth across the Western world remains too low," said UK finance minister George Osborne on Wednesday, presenting his latest Budget to Parliement.
 
"It makes for a dangerous cocktail of risks."
 
Gold priced in Sterling held firm as the Pound fell to a new low for March on the FX market, trading unchanged from last week's finish at £873 per ounce – a 2.5-year high when first reached in late February.
 
Chart of wholesale gold prices in British Pounds, last 5 years
 
The UK's official forecast for economic growth has been revised sharply lower to 2019, cutting the annual average from 2.4% to below 2.1% and cutting the cumulative GDP growth outlook for the world's 5th largest economy by more than one percentage point overall.
 
Munich Re (BIT:MUV2) – the 10th largest insurance company in Europe – said it is holding "double-digit millions" of Euros in physical cash to avoid losing value from negative interest rates and bond yields.
 
Standing down as CEO next year, Nikolaus von Bomhard – who yesterday reported €3.1 billion profits for 2015 ($3.4bn) but warned 2016 net income will fall "on account of continuing low interest rates and intensive competition in reinsurance" – told a conference that German savers are being hurt by the European Central Bank's hardening NIRP penalty rate on commercial banks' excess deposits.
 
"We are simply giving it a try now. So they can see how serious the situation is."
 
2015 saw physical gold account for 0.4% of Munich Re's total €82 billion in assets, yesterday's annual report shows.
 
Gold priced in Euros rose €10 per ounce on Wednesday from yesterday's 3-week low at €1104 before edging back.
 
Denmark's central bank today reported a small loss on gold for 2015 but a DKK2bn profit overall ($300m) thanks to charging a NIRP of 0.75% on commercial bank deposits, plus speculators losing their bet that it would be forced to abandon the Krone's peg to the falling Euro currency last year.
 
Jumping 20% from late 2015's one-year low, the gold price in Danish Krone has leapt this month to the highest level since the global price crash of spring 2013.

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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