ECB Sees Gold as Important Asset

Gold
Gold is continuing its strong upward run and is currently trading at $1.061.40/oz. In EUR and GBP terms, gold has risen again and is trading at €720/oz and £650/oz respectively.

The majority of participants at the LBMA Precious Metals Conference in Edinburgh were bullish for gold’s outlook going forward. The chairman of the London Bullion Market Association, Kevin Crisp, said that the environment for gold prices is set to stay positive as concerns over the stability of other markets fuel investment into hard assets. The conference heard how the European Central Bank believe that gold will remain an important asset for European central banks as risk diversification becomes a more significant issue. Paul Mercier, deputy director general of market operations at the ECB, said that “gold makes sense as a contributor to risk diversification." He said the Eurosystem holds 10,800 metric tons of gold, roughly one third of world gold reserves.

The news that India has bought 200 tonnes of a potential 403.3 tonnes of gold from the IMF is very bullish. The sales occurred over two weeks prior to October 30th when gold was trading between $1,030/oz and $1,070/oz showing that physical demand for gold is very robust at these levels (reports that an IMF official said that the sale was concluded at an average price of about $1,045 an ounce and that the transaction would be paid in dollars and not in IMF Special Drawing Rights). The Chinese are on record as wanting to increase their gold reserves significantly as their gold constitutes less than 2% of their foreign exchange reserves (compared to over 60% for most major European countries and nearly 79% of US foreign exchange reserves). Chinese and other large US creditor nations foreign exchange diversification is likely a primary reason for the robust performance of gold in recent weeks.

Smart money internationally, including central banks and the more astute hedge funds, are buying on the dips in anticipation of much higher prices. $1,200/oz remains a possibly target by year end and contrary to some simplistic analysis the recent rally in prices is sustainable.

Silver
Silver is currently trading at $16.46/oz, €11.14/oz and £10.09/oz.

Platinum Group Metals
Platinum is trading at $1,343/oz and rhodium is trading at $1,950/oz. Palladium is currently trading at $324/oz.

Disclosure: No positions

Comments

[frdm45]

"The conference heard how the European Central Bank believe that gold will remain an important asset for European central banks as risk diversification becomes a more significant issue."

Gee Jon Nadler, I wonder if this qualifies as a bullish development..............

2009 Nov 03 11:37 AM

[secmaven]

The US owns over 8,000 tons? Show me the gold!

2009 Nov 03 11:42 AM

[Timothy Donilly]

This is some interesting insight into the impact of the interest rate and ECB: www.goldalert.com/stor...

2009 Nov 03 12:13 PM

[Freya]

The fact that India's central bank picked up 200 tons of the IMF sale and the Russian Central Bank is not selling any, means nothing then.

Nor does India's selling of gold in grams and higher to its citizens through its Postal system, No mention of this either.

Both China and India are pushing Gold/Silver as an Investment.

2009 Nov 03 12:51 PM

[tripleblack]

I agree with you, Freya, and the net outflow of gold recently from India was the to-be-expected result of millions of individuals dipping into their 22kt jewelry reserves to help weather the recession. Given the tight family support systems of Indians in the United States, I would not be a bit surprised that a good bit of that cash ended up over here.

We can expect that as the recession receeds in India, the accumulation of gold in the hands of the many will resume, while the same process in China will also make its mark.

I have been saying for some time that I look for $1200 gold in 2010 - and we may even see that EARLY in 2010. And I expect that to happen whether or not the $ is supported.


On Nov 03 12:51 PM Freya wrote:

> The fact that India's central bank picked up 200 tons of the IMF
> sale and the Russian Central Bank is not selling any, means nothing
> then.
>
> Nor does India's selling of gold in grams and higher to its citizens
> through its Postal system, No mention of this either.
>
> Both China and India are pushing Gold/Silver as an Investment.

2009 Nov 03 01:14 PM

[Mad Hedge Fund Trader]

yhn ) News broke this morning that, out of the blue, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF for a handy $6.8 billion. The news set the gold market on fire, boosting the December futures to an all time high of $1,088. It is the largest transaction in the barbaric relic since the Alaric’s Visigoths sacked Rome in 410 AD. It has been public knowledge for some time that the IMF was looking to unload 403 tonnes of the yellow metal in order to fund lending to poor countries. Many traders say this threatening overhang is why gold failed to definitively break out to the upside this year, despite six attempts. The expectation was that China would take this hoard as part of a broader diversification away from the dollar. Bringing India into the fray, which had no history of stockpiling gold, is a whole new kettle of fish. Not only does this raise the prospect of a bidding war with China for more gold reserves, other cash rich emerging market central banks are likely to join the fray as well, no doubt panicked by the ominously rising whirr of printing presses in the developed countries. My short term goal for gold was $1,200, but I now have to raise that to the $1,300 favored by some chartists in view of the new dynamics. If you want to see my long term target, take a look at the chart below, which has gold zeroing in on its inflation adjusted all time high of $2,358.

2009 Nov 03 07:46 PM