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Russian Government to Amass "Huge Volumes" of Gold

Release Date: 
Thursday, October 20, 2011

The Russian central bank will continue to purchase gold for its reserves, according to First Deputy Chairman Alexei Ulyukayev. He told the Russian parliament, "we are not planning to step away from this path. We are acquiring huge volumes (of gold)."  Central bank data showed that Russia's gold and forex reserves, the third largest in the world, increased to $517.7 billion as of Oct. 14.

Market uncertainty continues over the likely outcome of a key summit of European Union leaders scheduled for October 23. French President Nicolas Sarkozy said efforts to secure a deal to tackle the euro zone debt crisis were stalled over how to increase the region’s rescue fund. France and Germany have said they will unveil comprehensive measures designed to prevent Greece from defaulting and limit the spread of debt problems to at-risk European economies.

Analysts commented on gold’s role as a safe haven asset as investors seek to guard against negative outcomes from the Euro-zone debt crisis. HSBC analyst Jim Steel wrote in a note, "Until this crisis is over, we believe gold will remain well bid due to its utility as a safe haven and portfolio diversifier."

Peter Fertig, an analyst with Quantitative Commodity Research, noted the dynamics that would influence gold prices if markets are receptive to the proposed solutions for Europe. "If the summit delivers a convincing proposal ... there would be a decisive recovery in the stock market, narrowing spreads in the bond market and most importantly, the euro would firm against the U.S. dollar, which would be positive for gold, despite there being less demand for it as a safe-haven," he said.

Hou Xinqiang, an analyst at Jinrui Futures in China, said "We are likely to see more downside in commodities in the near term, with the gloomy macroeconomic backdrop, but gold may hold up relatively well due to its safe haven nature, even though its commodity identity has been more pronounced lately."

(Sources: "Gold Slips as Investors Turn Again to Cash," Wall Street Journal, October 20, 2011; "Gold falls, sticks more closely to stocks,"Reuters, October 20, 2011; "Russia cbank says will raise gold share in reserves," Reuters, October 20, 2011)

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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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