Gold News

Gold Prices Flat Near 4.5-Year Lows, "Central Banks Get Active" as LBMA Conference Debates Gold's Role as Diversifier

GOLD PRICES rallied $10 per ounce in London trade Tuesday, hitting $1156 – a new 4.5-year low when first reached last week – as world stock markets ticked higher but crude oil fell again.
 
"The gold price has continued to trend lower," says a new note from US investment bank Goldman Sachs, "on the back of the strong US Dollar, rising real interest rates and better-than-expected US economic data."
 
Looking 12 months ahead, "we should see prices stabilise" says the London market-making bank.
 
But gold prices could first fall to $800 per ounce, reckons Michael Sheehan, a portfolio manager at Redkite Capital, as disappointment grows with gold as a "diversifier" he told the London Bullion Market Association's 2014 conference in Lima, Peru on Monday.
 
Fidelity Investments portfolio manager Joe Wickwire, in contrast, told the LBMA conference that now is a good time "to take advantage of negative short-term trading sentiment."
 
"A little goes a long way," he said, noting that a 5-10% allocation between 2000-2010 would have helped investors avoid the stock market's repeated crashes.
 
With emerging-market central banks still only small gold holders, according to one speaker at the LBMA conference,  the group as a whole are now "managing gold [reserves] more actively," said Banque de France market operations director Alexandre Gautier, also at the LBMA conference.
 
"More central banks are using gold as a liquidity tool," he said, suggesting that gold bullion reserve managers are leasing out metal to raise cash for other investments.
 
Unnamed "sources" speaking at the conference to Reuters meantime said the Russian government has been forced to buy gold from domestic miners because – thanks to anti-Russian sanctions over Moscow's annexation of Crimea from Ukraine this spring – they are otherwise blocked from the international gold market.
 
Now the world's fifth largest national gold reserves, Moscow's hoard has swollen almost 10% so far this year to overtake China's reported gold bullion reserves at 1,100 tonnes.
 
Last month a senior official from the Russian central bank said it might sell some gold to raise foreign exchange – a move "which would make sense if the Russians found their Dollar reserves were no longer useful" thanks to sanctions, says French investment bank analyst Nic Brown, who last year also pointed to a growing trend for "dynamic gold hedging" amongst smaller central banks now holding larger reserves and wanting to maintain a certain proportion in bullion.
 
Meantime in India – formerly the world No.1 consumer nation – anti-import rules imposed last year may be tightened according to the Business Standard, as inflows have revived and worsened the country's large trading deficit with the rest of the world.
 
"The import bill for the yellow metal for October is expected to be over $3.5 billion," says the paper, warning that "could put pressure for more restrictions" on the BJP government of Narendra Modi – widely hailed before May's general election as wanting to relax the import rules as part of his pro-business stance.

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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