April 2015 – Week 4 Edition
Gold fell under $1200 on Monday, April 20, due to another emergency rescue for Greece in the euro-zone. Although gold remains “flat” in terms of the U.S. dollar, gold rose to its second highest price level of the last two years in terms of the euro in the middle of last week. The dollar is up 13% so far this year to the euro, so with gold “flat” in dollar terms, it is up 13% in Europe – a continent that is now fighting deflation by offering interest rates below zero for short-term cash and barely above zero (+0.1%) for 10-year German bonds (or “bunds” as they are called in Germany). Gold is still an attractive investment in most of the world, while it remains just “attractively priced” at around $1200 per ounce in U.S. dollars.
Rising demand in the three major gold buying nations – China, India and the U.S. – is helping gold rise in terms of most of the world’s currencies. As for the dollar price of gold, we are at least seeing downside protection around $1190 and a longer-term “floor” under the gold price at the March 17 $1142 bottom.
The Gold Demand Picture Remains Strong Worldwide
The stock market fell sharply last Friday on fears that China is “slowing down” from something like 7.5% annual growth (last year) to 7% or slightly less this year, but China is still the fastest-growing economy in the world, with tens of millions of new Chinese entering the middle class each year, boosting the demand for gold among Chinese investors. Like the Europeans, the Chinese face a limited option of competing investments. Their real estate prices are depressed, while their stock markets are like a “Wild West” gambling arena, unregulated and subject to wide swings of booms and busts. Gold is a clear favorite for the more conservative Chinese investors. The World Gold Council says that China’s gold demand will rise about 25% over the next few years, rising to at least 1,350 metric tons by 2017. That’s almost half of the estimated 3,000 tons of gold mined each year.
India’s “auspicious” gold-giving festival of Akshay Tritiya falls this week, on Tuesday, April 21. Last week, we covered the rising demand in India in the first quarter of this year. Gold imports to India more than doubled in March from a year ago (125 metric tons vs. 60 tons in March, 2014), while January demand rose 9% and February rose 57%, representing a net 67% rise in the first quarter of 2015 vs. 2014.
Russia’s Back!...Buys 1 Million Ounces Of Gold In March
After laying low for two months with no gold purchases, Russia went on a buying spree in March, adding one million troy ounces of the yellow metal to its foreign exchange reserves. According to the website of the Central Bank of the Russian Federation, Russia owned 39.8 million ounces of gold as of April 1, up from 38.8 million ounces reported a month earlier.
Russia had added gold in each of the last nine months of 2014, then inexplicably went silent in January and February. That prompted speculation among gold watchers that Moscow might be changing its strategy of diversifying its foreign reserves out of U.S. dollars.
The massive March buy renders that concern moot. The 30-tonne March acquisition was Russia’s biggest gold purchase since September, boosting its gold stash by 2.6%. President Vladimir Putin clearly plans to press on with his strategy of replacing U.S. dollars in Russia’s vaults with assets of real value.
“It’s interesting that Russia is still buying because its economy has taken a knock from Western sanctions and from lower oil prices,” said David Jollie, an analyst at Mitsui & Co. Precious Metals Inc.in London. “This sends a very bullish signal to the gold market.”
“That the Russians increased their holdings is a relief for gold bulls,” said Matthew Turner, an analyst at Macquarie Group Ltd. in London. “With the Russian economic problems, they could have decided to go either way.”
Some analysts have suggested that Russia may be coordinating its gold accumulation with other ex-Soviet states – notably Kazakhstan and Belarus – toward the end of forming a common monetary policy that includes acquisition of official gold reserves.
Russia has more than tripled its gold hoard since 2005 and now holds about 1,238 tonnes of gold, making it the fifth largest gold owner in the world.
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