$XAU, $GLD, $USD, $EUR
Emerging markets have been adding gold holdings regardless the prices are near their highest marks in more than 6 years, as countries such as Russia and China diversify their Fx reserves, this is a trend that is likely to continue.
Central bank buying is important to the supply/demand dynamic for the precious Yellow metal, but is much more important in terms of sentiment toward the metal, and buying as heavily as they are, it provides cover and a rationale for other central banks to join in the action.
Russian central bank gold reserves stand at 2,219.2 tonnes, according to the World Gold Council (WGC) based on the latest data available in September from sources including the International Monetary Fund (IMF). China’s holdings are at 1,936.5 tonnes.
The latest prices: Gold futures increased 0.8%, or $12.00, at $1511.50 oz.
The moves are due to concerns about the outlook for currencies, including USD and EUR. While the gold tonnage demand from central banks in recent months has been significant and near records, gold remains a very small fraction of most central banks’ foreign-exchange reserves, and we see the trend is “sustainable and indeed may accelerate.”
Central banks had a record 1-H of this year, collectively buying 374 tonnes of gold through June. That was the highest 1-H of the year since central banks became net buyers in Y 2010. Net purchases from central banks year to date are still below those of Y 2018, but with the significant level of central bank purchases this year, will mark above the 10-year average.
The price of gold, which has climbed to 6-year highs in the last 3 month has not hurt that appetite for the precious Yellow metal. Gold futures settled at $1,560.40 oz on 4 September, the highest close since April 2013.
Price is not the determining factor in central bank buying, as the banks are more likely being guided to secure an allocation of a percentage of their overall foreign-exchange reserves in gold bullion. The central bank diversification and hedging are likely to support gold at these levels and could be a driver of higher prices in the coming months.
The WGC reported that gold holdings in Russia represent 19.6% of its total foreign reserves, while gold holdings are just 2.8% share of China’s total foreign reserves.
China and Russia are obviously intent on insulating themselves from a dollarized global economy, and gold seems to be a very important part of that strategy. While gold still represents a relatively small portion of China’s total foreign reserves…the PBoC seems to feel that gold will become more valuable over time, while the USD will become less valuable.
The rush of central bank gold buying says a lot about where gold going over the long term, or where the central banks believe it’s going.
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