Saturday, October 20, 2012

10 nations that control the world’s gold


It is now more obvious than ever that gold is becoming the new global reserve currency. Continuous and aggressive central-bank actions from the United States and Europe are driving the demand for gold. Investors have not yet seen any of the real hyperinflationary pressures that seem likely down the road.

Gold’s substantial rise in price should speak for itself. In dollar terms, gold returned 11.1% in the third quarter and was up by 16% year-to-date through the end of the quarter. The World Gold Council said that gold has a low stock-market correlation through time. That was not the case in the third quarter. Gold still outperformed almost all the major equity markets in the largest gold-holding nations in 2012.

24/7 Wall St. analyzed how the gold rankings compare to each major nation’s gross domestic product and how those figures compare to the top 10 holders of gold. What is surprising in some cases is how countries with the largest GDP are not necessarily the largest holders of gold. Two small nations, the Netherlands and Switzerland, are major holders of gold. Under the terms of the Central Bank Gold Agreement among major European states, many countries are supposed to be selling gold but are not.

The United Kingdom’s $2.43 trillion in GDP is the world’s seventh largest, but its gold holdings of 310.3 tonnes rank only 17th in the world and account for only 15.9% of its total foreign reserves. Does the old term “pound sterling” mean that the British banks really care more about silver? Another standout exception is Brazil, which has tiny gold reserves compared with its GDP. Its $2.5 trillion in GDP ranks sixth in the world, yet it holds only 33.6 tonnes of gold, or 0.5% of foreign reserves. Brazil ranks a surprising 52nd in the world among gold holders.

The International Monetary Fund is the third-largest official holder of gold, with more than 2,814 tonnes. The European Central Bank ranks right behind India, with 502.1 tonnes and 32.3% of its total foreign reserves held in gold. Central bank buying of gold was recently undertaken by Russia, Turkey, Ukraine and the Kyrgyz Republic. Turkey went as far as raising the gold reserve requirements for its commercial banks.

The World Gold Council report shows low borrowing costs and the support of financial markets spur gold accumulation. Gold is no longer just an inflation hedge; it is the key protection against a global race to devalue currencies, even if consumer prices are somewhat stable. Bonds pay historically low rates and stock market volatility has spooked many investors, so gold is becoming the true safe haven.

Major central banks are growing their balance sheets by purchasing trillions of dollars in paper assets. The World Gold Council said that research showed that a 1% change in money supply, six months prior, in the United States, Europe, India and Turkey tends to increase the price of gold by 0.9%, 0.5%, 0.7% and 0.05%, respectively. The Council also said that inflation is still several years off and many central banks have been more worried about deflation. Investors would be well advised to heed a warning from bond king Bill Gross, who told global investors to have exposure to hard assets, which will rise in value with inflation.

24/7 Wall St. has listed the 10 nations with the largest gold reserves, along with the percentage of total foreign reserves held in gold, each nation’s 2011 GDP and how it ranks in the world, and the local stock market performance. We have added analysis about how the potential unraveling of the euro could play into the future buying or selling of gold by European nations. For nations outside Europe, we have provided some historical context and predicted the path that their central banks are likely to follow in the years ahead.

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Wednesday, October 17, 2012

Gold holds near $1,750/oz


(Reuters) - Gold held near $1,750 an ounce on Wednesday, underpinned by gains in the euro after Moody's rating agency affirmed Spain's investment grade status, fuelling hopes that Madrid will soon apply for formal aid from its European Union partners.

The euro hit a one-month high and the dollar index .DXY dropped to its lowest in nearly two weeks following the Moody's decision. A weaker greenback makes dollar-priced commodities more attractive for buyers holding other currencies.

But investors' confidence in gold's ability to extend gains was muted after its drop to a one-month low on Monday, following forecast-beating U.S. data that called into question the extent of the Federal Reserve's latest quantitative easing programme.

The launch of QE3, which is expected to benefit bullion by keeping interest rates at rock bottom and fuelling inflation fears, helped send gold to its 2012 high at $1,795.69 earlier this month. It has struggled to maintain that rally, however.

"Markets are following fears that QE3 might end soon and it is not, as many believed, QE infinity (open-ended)," said Peter Fertig, a consultant at Quantitative Commodity Research.
Spot gold was flat at $1,747.54 an ounce at 1432 GMT, while U.S. gold futures were up $3.30 an ounce at $1,749.60.

Prices were expected to remain in a tight range as investors waited for fresh direction on Europe, where a summit of European Union leaders begins on Thursday.

"Normally I would expect that with the ratings outlook for Spain being confirmed as investment grade by Moody's that would be a positive, however you have the EU summit this week on Thursday which is a focus for markets," Fertig said.

Data released Wednesday showed groundbreaking on new U.S. homes increased by 15 percent in September to a seasonally adjusted annual rate of 872,000 units, its quickest pace in more than four years.
Investors will also be watching China's third-quarter gross domestic product figure due later this week.

Weak data would be considered likely to point to stimulative policies that could be supportive for gold.
"The overall attitude towards the yellow metal remains positive looking out over the months ahead, but hesitancy to express that view in the near term is becoming an obstacle. It feels like gold needs a healthy clean-out at this juncture," UBS analyst Edel Tully said in a note to clients.

"A further correction from here would ultimately be beneficial though, given the sharp run-up in prices since mid-October, the repeated failure to breach $1,800 and the degree of speculative length," Tully added.

ETF HOLDINGS RISE

Holdings in bullion-backed exchange-traded funds inched up by almost 16,700 ounces on Tuesday, as a 28,000 ounce inflow to New York's Comex Gold Trust more than offset an 11,500 ounce outflow from ETF Securities' holdings.

Meanwhile, silver ETF holdings slipped by 1.3 million ounces, following outward flows from the iShares Silver Trust and ETF Securities.

In South Africa, where industrial unrest has gripped the country's mining sector, bullion producer Gold Fields (GFIJ.J) said on Wednesday that an illegal strike at some of its facilities had ended.
It said 6,200 employees returned to work at its Beatrix site, which is expected to produce 360,000 ounces of gold this year.

Original:
http://www.reuters.com/article/2012/10/17/us-markets-precious-idUSBRE89G13T20121017