Precious Metals News Roundup

Week of September 9- September 13, 2019

Russia’s Huge Gold Stash Is Now Worth More Than $100 Billion

By Yuliya Fedorinova and Anna Andrianova September 9, 2019, 12:14 AM PDT Updated on September 9, 2019, 6:06 AM PDT

  • Value of Russia’s gold reserves climbed 42% in the past year

  • Russia is diversifying from U.S. assets and gold has rallied

Russia’s long-running bet on gold is looking better every month.

The country quadrupled gold reserves in the past decade as it diversified away from U.S. assets, a move that has paid off recently as haven demand sent prices to a six-year high. In the past year, the value of the nation’s gold jumped 42% to $109.5 billion and the metal now makes up the biggest share of Russia’s total reserves since 2000.

Russia’s central bank has been the largest buyer of gold in the past few years as President Vladimir Putin seeks to break reliance on the U.S. dollar as relations between the countries remain strained. If Russia did need to tap its gold holding, it would fetch a hefty price -- the metal is heading for the best year since 2010 as the U.S.-China trade war hurts global growth and central banks ease monetary policy.

“Russia prefers to cushion its macroeconomic stability through politically neutral tools,” said Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki. “There is a massive substitution of U.S. dollar assets by gold -- a strategy which has earned billions of dollars for the Bank of Russia just within several months.”

  • Russia’s gold reserves total more than 2,200 tons, the fifth-biggest hoard by country, and gold now accounts for 20.7% of overall reserves.

  • The value of Russia’s currency reserves are up 9.5% in the past year, lagging the gains seen in bullion.

  • The central bank bought about 106 tons so far this year, the latest data show. That’s down 19% from the same period in 2018 but still more than any other nation.

  • Last year, Russia’s gold buying exceeded its mine supply for the first time.

 

Russia isn’t alone in hoarding gold. China, Kazakhstan and Poland have been among the biggest buyers in the past couple of years, and global holdings are expected to increase for a while yet.

 

Not all of Russia’s moves are paying off. Last year, the central bank shifted about $100 billion of U.S. holdings into euros, yuan and the yen, and since then the Chinese currency has dropped. Russia also missed out on the rally in U.S. Treasuries.

Russia may keep buying gold to compensate for those other losses in its reserves, said Kirill Tremasov, a former Economics Ministry official and now director of analysis at Loko-Invest in Moscow. So far it’s working, with gold up 18% this year to $1,513 an ounce.

For Russia at least, it’s more about diversification than benefiting from the price. The central bank started buying gold more than a decade ago as it rallied toward 2011‘s record, and kept adding when prices dropped in the following few years.

“The central bank is unlikely to have pursued the goal of earning in the process of managing gold reserves,” Dmitry Dolgin, an economist at ING Bank, said by email. “The buying was rather about diversification of assets.”

China Has Added Nearly 100 Tons of Gold to Its Reserves

By Ranjeetha Pakiam September 8, 2019, 7:49 PM PDT

  • Mainland central bank raises holdings for ninth straight month

  • Official sector demand spurred by drive to diversify reserves

China has added almost 100 tons of gold to its reserves since it resumed buying in December, with the consistent run of accumulation coming amid a rally in prices and the drag of the trade war with Washington.

The People’s Bank of China raised bullion holdings to 62.45 million ounces in August from 62.26 million a month earlier, according to data on its website at the weekend. In tonnage terms, August’s inflow was 5.91 tons, following the addition of about 94 tons in the previous eight months.

Bullion is near a six-year high as central banks including the Federal Reserve cut interest rates as signs of a slowdown mount amid the U.S.-China trade war. Central-bank purchases have been another key support for prices as authorities from China to Russia accumulate significant quantities of bullion to help diversify their reserves. That buying spree likely to persist in the coming years, according to Australia & New Zealand Banking Group Ltd.

Trade war restrictions, in the case of China, or sanctions, as with Russia, give “an incentive for these central banks to diversify,” John Sharma, an economist at National Australia Bank Ltd., said in an email. “Also, with increasing political and economic uncertainty prevailing, gold provides an ideal hedge, and will therefore be sought after by central banks globally.”

China has previously gone long periods without revealing increases in gold holdings. When the central bank announced a 57% jump in reserves to 53.3 million ounces in mid-2015, it was the first update in six years.

Spot gold rose 0.2% to $1,510.27 an ounce on Monday. Prices, which capped a fourth straight monthly gains in August, have risen 18% this year. Goldman Sachs Group Inc. and BNP Paribas SA are among banks that expect the metal to challenge $1,600 an ounce within the coming months.

— With assistance by Emma Dong

‘Gold is the way to go’ as interest rates fall, says Mark Mobius

PUBLISHED SUN, SEP 8 2019  10:28 PM EDT UPDATED MON, SEP 9 2019  6:02 AM EDT Huileng Tan@HUILENG_TAN

KEY POINTS

  • Mark Mobius, the founding partner of Mobius Capital Partners, recommends that investors hold 10% of their portfolios in physical gold, and invest the rest in dividend yielding equities.

  • In the first half of this year, central banks bought 374 metric tons of gold, according to the World Gold Council. That was the largest net increase for the first half of the year since at least 2000.

  • China’s central has been adding to its gold reserves for eight straight months since December, scooping up another 10 metric tons of the yellow metal in July, according to data from the People’s Bank of China.

Veteran investor Mark Mobius is bullish on gold as central banks around the world cut interest rates.

“Physical gold is the way to go, in my view, because of the incredible increase in money supply,” said Mobius, the founding partner of Mobius Capital Partners.

“All the central banks are trying to get interest rates down, they are pumping money into the system. Then, you have all of the cryptocurrencies coming in, so nobody really knows how much currency is out there,” he told CNBC’s “Street Signs” on Friday.

Amid expectations of slowing global growth, central banks around the world have been lowering interest rates, as they seek to boost money supply in the economy, stoke demand and provide an impetus to growth.

Mobius recommends that investors hold 10% of their portfolios in physical gold, with the rest invested in dividend yielding equities. That’s especially if the dollar gets weaker.

In his view, “the U.S. government, the Trump White House, does not want a strong dollar.”

“They are certainly going to try to weaken the dollar against other currencies and of course, it’s a race to the bottom. Because, as soon as they do that, other currencies will also weaken,” said Mobius.

“People are going to finally realize that you got to have gold, because all the currencies will be losing value,” he added.

Gold can retain its value much better than other forms of currency, and is traditionally a safe haven during market volatility.

A weaker dollar tends to boost the price of gold as global trade in the yellow metal is denominated in U.S. dollars.

“At the end of the day, gold is a means of exchange. It’s a stable currency in some way,” said Mobius.

Central banks are buying gold

Data from the World Gold Council this year point to rising central bank demand for the yellow metal amid global macroeconomic uncertainty.

In the first half of this year, central banks bought 374 metric tons of gold, reported the World Gold Council. That was the largest net increase for the first half of the year since at least 2000.

“Deep down inside, the central bankers do believe in gold, but they don’t want to say it because ... they won’t be able to create new currency,” said Mobius.

The 2019 Central Bank Gold Reserve survey, conducted by the World Gold Council and released in July, also found there was central bank demand for gold in the short to medium term.

Of those polled, 11% of emerging market and developing economy central banks said they intended to increase their gold reserves over the next 12 months.

That was similar to data from 2018 when 12% of such central banks bought gold, giving rise to 652 metric tons of central bank gold demand — the highest level on record under the current international monetary system, noted the World Gold Council.

“The planned purchases are being driven by higher economic risks in reserve currencies. In the medium term, central banks see changes in the international monetary system, with a greater role for the Chinese renminbi and gold,” said the World Gold Council in their report. The renminbi is another name for the Chinese yuan.

About 40% of emerging market and developing economy central banks cited “anticipated changes in the international monetary system being relevant to their decision to hold gold,” the World Gold Council said.

China also investing in gold

Spot gold was trading around $1,509.51 an ounce on Monday morning in Asia after hitting a six-year high of $1,554.56 in late August amid heightened U.S.-China trade tensions.

China’s central bank has been adding to its gold reserve for eight straight months since December, scooping up another 10 metric tons of the yellow metal in July, according to data from the People’s Bank of China.

“China is the biggest producer of gold to begin with. And then of course, they’ve been buying gold, so nobody really knows how much they have in the vaults,” said Mobius. “I’m sure it’s been increasing at a pretty good pace.”

Beijing has partially lifted restrictions on imports of gold, industry sources told Reuters in late August.

— CNBC’s Elliot Smith and Reuters contributed to this report.

Why next year could be the most volatile in history for investors

Published: Sept 9, 2019 11:47 a.m. ET   By SHAWNLANGLOIS SOCIAL-MEDIA EDITOR

Think 2019 has been hectic? You ain’t seen nothing yet.

According to our call of the day from John Mauldin of Mauldin Economics, 2020 “will be the most volatile year in history” for investors.

“The last few weeks marked a turning point in the global economy. It’s more than the trade war. A sense of vulnerability is replacing the previous confidence — and with good reason,” he wrote in his latest market update. “We are vulnerable, and we’ll be lucky to get through the 2020s without major damage.”

Mauldin pointed to supply shocks, the trade war, interest rates, unproductive debt and Europe’s mess as some of the factors set to create the perfect storm, but it’s one volatility bomb, in particular, that could blow up best-laid plans.

“Remember when experts said to keep politics out of your investment strategy?” he asked. “We no longer have that choice. Political decisions and election results around the globe now have direct, immediate market consequences.”

Of course, the most consequential of all: The 2020 U.S. election. And Mauldin doesn’t sound too hopeful about any of the scenarios.

“None of the possible outcomes are particularly good. I think the best we can hope for is continued gridlock,” he said. “But between now and November 2020, none of us will know the outcome. Instead, a never-ending stream of poll results will show one side or the other has the upper hand.”

Markets will be a mess, bouncing up and down with each headline, Mauldin warned, and that will inspire politicians and central bankers to react. To “do something.” That something, he said, will probably be the wrong thing.

Citigroup Says Gold May Top Record

By Ranjeetha Pakiam September 9, 2019, 10:30 PM PDT Updated on September 10, 2019, 12:06 AM PDT

  •  Recession risks and investor demand underpin bank’s outlook

  •  Prices seen ‘stronger for longer, possibly breaching $2,000’

Gold prices may rally to a record above $2,000 an ounce in the next two years, according to Citigroup Inc., which gave a laundry list of positive drivers including rising risks of a global recession and the likelihood that the Federal Reserve will reduce U.S. interest rates to zero.

“We expect spot gold prices to trade stronger for longer, possibly breaching $2,000 an ounce and posting new cyclical highs at some point in the next year or two,” analysts including Aakash Doshi said in a note received Sept. 10. That would exceed the record of $1,921.17 set in 2011.

Low or lower-for-longer nominal and real interest rates; global recession risks -- exacerbated by U.S.-China trade tensions; and heightened geopolitical rifts are “combining to buttress a bullish gold market environment,” the bank said. Also, “in affinity to our U.S. rates research colleagues, we believe the Fed will ultimately end up cutting rates all the way to zero,” the analysts wrote.

Gold hit a six-year high this month as central banks ease policy to address the slowdown in growth amid the trade war. This week, investors expect the European Central Bank to unleash more stimulus, while next week the Fed is seen cutting rates again. That’s helped to drive flows into bullion-backed exchange-traded funds as investors track the trajectory of the U.S. economy.

Market Signals

“For now, the U.S. consumer and potential growth story is holding up,” Citi said in the note. However, “we remain more concerned about market signals -- three-month to 10-year yield curve inversion -- and leading indicators that are weakening at the fastest pace since the Great Recession,” it said.

Spot gold traded at $1,491.34 an ounce on Tuesday, up 16% this year after rising for the past four months. Citi said that it had upgraded its baseline forecasts for gold on the Comex by $125 to $1,575 an ounce for the fourth quarter, and by about 14% to $1,675 for 2020.

In July, U.S. monetary policy makers reduced borrowing costs for the first time in more than a decade, and they are widely expected to do so again at their Sept. 17-18 meeting. BNP Paribas SA, which is also bullish on the outlook for bullion, said it expects four quarter-point reductions over the coming year.

Citi’s outlook did come with caveats, including a hawkish turn from the Fed or a breakthrough in trade talks, although that’s not its base case. “A surprise trade deal coupled with a sharp upturn in global manufacturing data would probably suggest a peak for gold at the $1,550 an ounce level for this cycle.”

Gold prices climb by more than 1% after ECB unleashes basket of easy-money measures

Published: Sept 12, 2019 10:16 a.m. ET  By MYRAP. SAEFONG MARKETS/COMMODITIES REPORTER

Gold futures were on track to mark a second consecutive gain Thursday after the European Central Bank cut eurozone interest rates and delivered a batch of measures intended to boost the region’s sluggish economy — bullish moves for bullion.

The ECB cut its deposit rate further into negative territory, decreasing it by 10 basis points to negative 0.5%, while also announcing it would restart its monthly bond-buying program as it attempts to juice inflation and European expansion.

“Gold certainly welcomed the ECB stimulus,” said Craig Erlam, a senior market analyst at Oanda. “Ultimately, global easing like we’re seeing now has been bullish for gold and that’s exactly what we’re seeing right now.”

December gold GCZ19, +0.84%  on Comex gained $21 an ounce, or 1.4%, at $1,524.20 an ounce, after rising 0.3% on Wednesday. Silver for December delivery SIZ19, +0.28%, meanwhile, added 17.5 cents, or 1%, at $18.345 an ounce, after giving up less than 0.1% a day ago.

“Central banks around the world have been easing, and will continue to do so, and that’s why gold has been making such strides higher with only modest corrections along the way,” Erlam said in a market update.

A rally for gold comes as the U.S. dollar briefly scored a post-ECB gain then weakened, and U.S. stock indexes traded on a mixed note.

Expectations that the U.S. Federal Reserve may be influenced by the ECB helped to drive bond yields lower, offering support for bullion, which doesn’t offer a yield. The 10-year Treasury note yield TMUBMUSD10Y, -0.30%  was down 2 basis points to 1.7153% Thursday from 1.733% late Wednesday.

Policy measures implemented by the ECB come ahead of the Fed’s monetary policy gathering, where the central bank is widely expected to cut U.S. interest rates by 25 basis points on Sept. 18.

Reductions to global interest rates and some $17 trillion dollars in government debt that offers a negative yield have helped to bolster appetite for alternatives assets like gold, considered a haven during times of economic uncertainty.

Trading for precious metals also comes as President Donald Trump said late Wednesday that the U.S. would delay implementing fresh tariffs until Oct. 15 on $250 billion in China goods that were due to take effect on Oct. 1.

Trump’s action was taken by the market as a reflection of softening tariff tensions amid the Sino-American trade clash and comes ahead of a new round of negotiations between the world’s superpowers to resolve the conflict that is set to take place at an unspecified date in early October.

Other metals traded on Comex moved higher, with the exception of copper, which saw its December contract HGZ19, +0.54%  fall by 1.5 cents, or 0.6%, to $2.599 a pound. October platinum PLV19, +1.28%  traded at $951 an ounce, up $10.60, or 1.1%, while December palladium PAZ19, +2.41%  added $37.10, or 2.4%, to $1,593.90 an ounce.

Gold Surges With Bond Yields Sliding Post ECB

Updated Sept. 12, 2019 9:02 am ET | WSJ Pro

0853 ET - Gold is surging after slipping from six-year highs earlier in the week, with most-active futures adding 1.7% to $1,529.40 a troy ounce following the ECB’s decision to cut its key interest rate and start a large package of bond purchases to stimulate growth. Bond yields are falling around the world, paring a recent rebound. Some analysts fear that central-bank stimulus won’t be enough to stabilize the global economy, potentially lending further support to safe havens like bond and gold moving forward.

‘Global uncertainties will fuel gold for a year more’

Rutam Vora  Ahmedabad | Updated on September 13, 2019  Published on September 13, 2019

Is the recent gold rally an indication of an impending recession? Drawing a parallel between the trade wars of the 1930s that triggered the Great Depression, and the ones happening now, Arvind Sahay, Chairperson, India Gold Policy Centre (IGPC) at IIM-Ahmedabad, spoke to Businessline about what possibly lies ahead for gold amid the prevailing local and global economic uncertainty. Excerpts:

What do you think is causing the recent gold price rally?

We have been saying at the IGPC since last December that gold prices are set to go up. It is likely to go up till at least the second half of next year. There are global and domestic reasons for this rally.

There is a growing concern about macroeconomic uncertainty. The US-China trade war is getting nastier. Now, the US President wants American companies to come out of China. The global financial system is under stress.

The banking systems in India, the US and Germany are facing stress. In India, exports are stagnating. The auto sector is in a bad shape. People are postponing purchases. In the times of economic uncertainty, people turn to safe havens. Gold is a safe haven - it always has been, through history. This triggers demand and hence there is an increase in gold prices.

How serious is this global economic uncertainty?

An important indicator is that the bond yields have started turning negative. We are going through a phenomenon called ‘inversion of yield curves’. Normally, longer-term bonds give higher yields. But when shorter-term bonds yield more, the yield curves invert. This has been a predictor of recession. In the past, when the yield curves inverted, recession followed within 18-20 months. This time, it has been about 10 months since we saw the first inversion of yield curves.

This happens because there is uncertainty among investors. They are uncertain about the longer term. They are only a little certain about the shorter term. The shadow boxing between US-China, Russia-US and China-Iran-US has shaken the confidence. The problem is getting compounded. India is also seeing a similar phenomenon.

So are we headed for a recession?

The last time there was a tariff war on this scale was in the 1930s. Starting from the US, the Smoot-Hawley Act had increased tariffs, triggering retaliation around the world. Trade dropped steeply; therefore economic activity dropped and caused unemployment. This led to the Great Depression.

The US economy had contracted by about 33 per cent during 1930-38. That is a potential outcome of a trade war. It was true then and it is still true today. Trade wars need to get resolved in time. Can’t say if it’s recession, but we are definitely headed for hard times.

How are central banks behaving amid all this? Is their action fuelling the gold rally?

Because of these uncertainties, the central banks the world over have also started accumulating gold. In calendar year 2018, they had accumulated about 600 tonnes of gold, which is the largest accumulation by central banks in the last 50 years.

India also bought 40-50 tonnes. Others include Russia, Turkey, China and Germany. In 2019, as of August 31, over 450 tonnes have already been bought.

This shows the run rate is similar or may be a little higher than last year. On one side there is a flight to gold for safe haven purposes, and there is increased purchasing by central banks on the other. This triggers gold demand. But the production of gold remains stagnant, hence the prices go up.

We are inching closer to Diwali festivities. What is the gold demand outlook?

People will buy because of the festivals, for sentimental purchases. But not as much as they did last year. Incomes have not gone up this year.

The regular purchases will continue. For the next one year, IGPC believes, investors can buy from current levels and hold for one year, which should give an upside of another 10-20 per cent from here, if we believe in the logic and argument we discussed.

Should buyers opt for gold ETFs?

ETFs are good. But amid increased uncertainty, the wise investor would probably also have some physical gold. Because ETFs themselves don’t hold all that physical gold.

If there is a rush for redemption, demand for gold will go up and ETFs will have to arrange it. If the uncertainty goes beyond a certain point, one should have a certain portion of physical gold. There can’t be a single prescription for everyone. But retail investors aren’t advised to get into ETFs at this point of time. In more normal times, ETFs are a good way to have an asset allocation.

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