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Central Banks Increase Gold Reserves

Release Date: 
Monday, January 28, 2013

The price of gold fell ahead of a Federal Reserve meeting and expected policy statements this week.  Gold was $2.20 lower at 7:27 a.m. Pacific Time on the New York Spot Market, trading at $1,658.10 per ounce.  Spot silver was $0.18 lower at $31.10 per ounce.  (Click here for the most current spot prices.)

"The market is on hold ahead of the U.S. Federal Reserve's meeting, and expects comments on further quantitative easing measures," MKS Finance's head of marketing Frederic Panizzutti said. 

Bulls outnumbered bears as hedge funds and money managers raised their net long positions in U.S. futures and options of gold and silver in the week ended Jan. 22 according to  data from the Commodity Futures Trading Commission.

Russia and Kazakhstan increased their gold reserves in December.  Russian holdings climbed 2.1 increasing the countries total reserves by 8.5 percent.  Kazakhstan increased its gold reserves by 41 percent during 2012.  Turkey’s gold reserves grew by 14.5 percent.

Central banks need to “diversify into gold as the euro zone is not yet out of the woods,” said Lynette Tan, a senior investment analyst at Phillip Futures in Singapore. “This will provide long-term support for gold prices.” 

Prices will rally this year and into 2014 on central banks’ stimulus measures, according to Morgan Stanley.  The bank expects. Federal Reserve policy makers to maintain asset purchases for two more years to aid economic recovery. Prices will be supported by investment and central bank buying, analysts Peter Richardson and Joel Crane wrote.

Philip Klapwijk, global head of metals analytics at GFMS and Goldline newsletter contributor, said he "strongly" expects gold prices to post bigger gains this year than last. Mr. Klapwijk says he believes near-zero interest rates will persist in developed economies such as the U.S., Europe and Japan through this year, which makes gold a competitive alternative to holding money in a bank account.  Low interest rates "continue to support investor interest in gold in the absence of low-risk investments that can offer acceptable yield," he said.

(Sources:  “Russia, Kazakhstan Expand Gold Reserves as Central Banks Buy,” Bloomberg, January 28, 2013; “PRECIOUS-Gold holds near 2-week low ahead of U.S. Fed meeting,” Reuters, January 28, 2013; “Gold Bulls Are Holding On,” Wall Street Journal, January 25, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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