Gold price flat on Fed concerns; Russia keeps topping up
New York (Oct 31) Gold was trading US$3 lower to US$1,142 with uncertainty abound as to whether the Federal Reserve will indeed raise interest rates this year. It’s not just the US driving prices, however.
Gold was on track for its biggest weekly drop since July, after US personal consumption expenditure figures came out in-line with expectations.
Gold was trading US$3 lower to US$1,142 with uncertainty abounding as to whether the Federal Reserve will indeed raise interest rates this year.
It’s not just the US driving prices, however.
According to data from the GFMS gold survey covering the third quarter, there are a number of factors driving the gold price.
Retail investment in top gold consuming countries India, China and Germany saw buying increase 30%, 26% and 19% respectively from a year earlier.
These three markets alone accounted for an extra 26t of retail buying in the third quarter.
This was balanced by slightly weaker jewellery demand, the largest consuming sector according to the survey, which was marginally lower.
“High demand in India was offset by a slow recovery in Chinese off-take” the survey said.
Meanwhile, supply was also slightly higher, and remained at a 51 ton surplus.
But, physical demand was on the up by more than 7% year-on-year in the third quarter.
Central bank purchases were up 13% to 132 tons with Russia expected to be the biggest buyer this year.
The country has remained undeterred by a weakening gold price, continuing to steadily increase its gold reserves.
Since 2008, the country has bought an average of 0.3mln ounces per month, around 3.5mln oz per a year.
ABN Amro reckons there are potentially two reasons behind the steady increase in buying.
Firstly, as a major commodity producer and exporter, Russia would prefer rising and/or stable prices, the broker said, but the bull run came to “an abrupt end” when the financial crisis hit.
Over the last few years, Amro continued, the gold price has performed better than oil, potentially prompting the government to up its gold reserves.
As well as this, the Russian rouble has been on a downward trend versus the US dollar since 2008, made worse by the drop in oil prices earlier this year.
The drop in the rouble’s value sent Russia into a financial crisis, while sanctions imposed by the US and the Eurozone has meant Russia’s FX reserves have been depleted, the broker said.
“As Russia is a gold producer, a way to build international reserves is via buying domestically mined gold” Amro added.
This way this gold will not enter the international market, in a way reducing its dependency on the US dollar for international reserve building
Source: ProactiveInvestor
