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IMF Data Shows Increased Central Bank Gold Reserves in Russia

Release Date: 
Monday, February 25, 2013

Gold was higher Monday with support from several areas including central bank purchases, renewed euro zone concerns, and higher demand from China.  Gold was $2.00 lower at 11:58 a.m. Pacific Time on the New York Spot Market, at $1,576.00 per ounce.  Spot silver was $0.08 lower at $28.70 per ounce.  (Click le here for the most current spot prices.)

Central banks in Russia and Kazakhstan increased their reserves of gold for a fourth straight month in January, while Azerbaijan acquired bullion for the first time in more than three years, according to the International Monetary Fund.  “Central bank buying remains a feature and is providing some support,” Steve Scacalossi, vice president at TD Securities Inc. “We are also hearing of strong Chinese demand at lower levels.”  Gold purchases from China were “impressive” last week and continue this week, agreed Joni Teves, an analyst at UBS.

Gold was also supported by uncertainty over Italy’s upcoming elections and their effect on the euro zone. “The precious metal is profiting from the uncertainty amongst market players with respect to the outcome of the elections in Italy, which are regarded as an indicator of whether the debt crisis in the euro zone could flare up again,” the Commerzbank analysts said. Italy’s general election todays is being closely watched by to see if a stable and effective government can be formed.

UBS analyst Julien Garren wrote the U.S. economy’s influence on commodity prices is a delicate dance but the current dynamics can benefit gold in Q3 of 2013 if investors are patient.  “A recovery that led to strong job gains and an unexpected rise in inflation would likely force the Fed to end QE, and that would be very bearish for commodities. However, given the Fed voters’ highly dovish bias, we expect them to continue printing into 3Q13 when we in commodity strategy, in contrast to our economists, expect global growth to lose momentum. That sets up a major gold rally in Q3.”

(Sources:  “UBS is predicting a ‘major gold rally’ this year,” Marketwatch, February 25, 2013; Gold rebounds; bullish bets fall to 4-year low,” Marketwatch, February 25, 2013; “Gold Advances in New York on Purchases by Central Banks,” Bloomberg, February 25, 2013; “Russia, Kazakhstan Increase Bullion Reserves for Fourth Month,” Bloomberg, February 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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