Central Bank Gold Purchases Increased In 2014 Says WGC As Sweden Enters Currency Wars

 

 

– Official central bank purchases rose 17% in 2014

– Russia and Kazakhstan dominate purchases

– No official figures for China since 2009 – massive volumes pass through Shanghai

– Sweden’s Riksbank announces negative rates and QE


Central bank gold buying surged another 17% last year as countries outside of the Western hemisphere continue to stockpile the only currency with no counterparty risk.

Russia was by far the largest buyer. Its purchases made up a staggering 36% of total central bank buying. In total, central banks bought 477 tonnes of the precious metal last year of which 173 tonnes flowed into Russia, according to a report from the World Gold Council.

Interestingly, Kazakhstan – Russia’s main partner in the Eurasian Economic Area (EAEA) – was the second largest central bank buyer last year, having acquired 48 tonnes.

The Kazakhstan government has imposed a ban on exporting gold and its central bank has been buying up every ounce produced in the country for the past two years.

That Russia should be acquiring gold at such a pace while its economy experiences severe stress due to sanctions and low oil prices demonstrates how Russia views gold as a vital strategic asset. This, coupled with Kazakhstan’s enthusiasm for gold, leads us to wonder if gold might form the foundation of a currency agreement within the EAEA.

Notably absent from the WGC report is the presence of The People’s Bank of China in the gold market. China have not made their official holdings public since 2009. It has been speculated -based on figures out of Hong Kong – that Chinese appetite for gold is being sated.

However, figures from the Shanghai Gold Exchange (SGE) – which is rapidly overtaking Hong Kong as China’s main gold hub and which only deals in physical gold – tell a different story. In recent months enormous volumes have been passing through Shanghai.

Last month alone, 255 tonnes of gold passed through the SGE. It is likely that the PBOC were among its customers.

While central banks to the east of Europe are looking to bolster their reserves with tangible wealth, their western counterparts continue to debase their currencies with no contingency plan for a currency crisis.

The Swedish Riksbank became the latest central bank to enter the currency wars yesterday when it announced that it is reducing its key rate from 0% to  -0.10%. It will also begin it’s own bond buying program, buying 10 billion kronor of government bonds.

Sweden is the sixteenth country to cut rates this year. It claims to have made the move to combat deflation and is aiming for an inflation rate of 2%. It is widely believed that it is devaluing its currency to boost exports.

Denmark, cut its key rate to -0.75 on February 5th matching the Swiss. Denmark is trying to maintain its peg to the euro in order to protect its own export industry, an effort which cost it 106.3 billion krone in January.

Denmark has lowered its rates four times this year to try to stem excessive demand for the krone following the SNB’s capitulation last month which came about due to fears that defending the peg to the euro would bankrupt the country following the initiation of the ECB’s QE program.

Sweden’s move is likely to put pressure on Norway to follow suit to protect its exports given the large amount of trade among the Scandinavian countries. The Bank of England is also considering a rate cut.

The race to the bottom continues unabated in the currency wars. When they reach their logical conclusion it will be gold that is the last man standing.


MARKET UPDATE

Today’s AM fix was USD 1,225.75, EUR 1,073.10 and GBP 795.84 per ounce.
Yesterday’s AM fix was USD 1,225.25, EUR 1,080.75 and GBP 803.13 per ounce.

Gold rose 0.19 percent or $2.30 and closed at $1,222.00 an ounce yesterday, while silver climbed 0.42 percent or $0.07 closing at $16.86 an ounce.

Gold began inching forward again in its second session amid a weaker greenback. Greece is meeting with the IMF, the ECB and the European Commission today about a compromise on thebailout deal which expires on February 28th. However, the yellow metal still looks set to close down for its third straight week.

The U.S. dollar took a beating after poor U.S. retail sales and a surprise in jobless claims supported gold. The impending U.S. rate hike is still the elephant in the room that is limiting gold’s gains.

This bearish stance was seen in the world’s largest gold ETF, SPDR Gold Trust, which saw its holding drop 0.23 percent to 771.51 tonnes yesterday.

Demand in Asia is robust ahead of Chinese New Year and is still supporting the yellow metal. Shanghai Gold premiums traded at $3-$4 per ounce today.

While, Indian gold prices were at a premium of $2-$3 an ounce over the international benchmark on strong jewellery demand, compared with discounts last month.

Gold in London in late morning is trading at $1,225.03 an ounce up 0.12 percent, silver is $16.88 per ounce up 0.7 percent and platinum is $1,198.94 per ounce up 0.3%.

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Huge demand from Chinese citizens equates to 59 tonnes of physical gold.
Posted on 13 Feb 2015 by
(courtesy Koos Jansen)

SGE Withdrawals 59t in Week 5, YTD 315t. What is China Up To With All This Gold?

The day after the World Gold Council (WGC) released Gold Demand Trends Full Year 2014 in which they audaciously pretend Chinese gold demand last year was 814 tonnes, we can read from the Chinese SGE trade report of week 5 withdrawals from the vaults have been 59 tonnes. Year to date (– February 6) withdrawals from the vaults of the central bourse in China stand at 315 tonnes. In perspective, during the first five weeks of 2015 Chinese wholesale demand has been 39 % of what the WGC disclosed as total consumer demand in all of 2014.

Screen Shot 2015xxx-02-13 at 10.00.25 AM
Red (本周交割量) is weekly gold withdrawn from the vaults in Kg.

More perspective; corrected by the volume traded on the Shanghai International Gold Exchange (SGEI), withdrawals in week 5 were at least 42 tonnes (read this post for a comprehensive explanation of the relationship between SGEI trading volume and withdrawals). Year to date withdrawals corrected by SGEI volume were at least 289 tonnes.

Shanghai Gold Exchange SGE withdrawals delivery 2015 week 5, dips

Shanghai Gold Exchange SGE withdrawals delivery only 2014 - 2015 week 5, dips

Because of the importance of clarifying the mysterious gap between what the WGC discloses as Chinese gold demand in 2014 (814 tonnes) and the amount of gold we saw being supplied to China (at least 1,200 tonnes import, 452 tonnes mine output and 182 scrap supply = 1,834 tonnes), I would like expand on this subject in a separate post.

One quote I wish to share here; when I was researching Chinese market and reading through an old Alchemist copy (#75, page 11), my attention was drawn to a transcript from a keynote speech delivered by Jeremy East at the LBMA Bullion Market Forum in Singapore on 25 June, 2014. He made a remarkable comment we shouldn’t neglect when analyzing the Chinese gold market:

Why are the Chinese Buying?

So what is going on in China? Why are the Chinese buying? It only seems to have been happening over the last few years. What is going on?

China’s Gold Friendly Strategy

I was at the Shanghai Derivatives Forum at the end of May and one of the speakers was a representative of the [China] Gold Association. He gave us quite an interesting insight into the flavor of what is going on in China from a strategic perspective. Some of the things he talked about included that China planned to change the landscape of world gold markets. He talked about having a strong currency and about having that currency backed by gold, like the US dollar. He also talked about people holding more gold and encouraging more people to hold gold. That is not just individuals, but also the central bank. From that perspective, it is also getting gold into the country in terms of encouraging domestic gold production, but also investing in international mining companies and sourcing the product from them. China has got a very friendly gold strategy. 

There you have it, China is planning to change the landscape of world gold markets and strengthening the renminbi through supporting it by gold. Therefor it’s in the interest of the People’s Republic Of China not only Chinese individuals hoard gold, but the central bank as well. To achieve this mining and import is stimulated by the State Council.

Remember what Zhou Ming, General Manager of the Precious Metals Department at ICBC, said at the same conference?

…a new global currency setup is being conceived.

Mr East’s statement fits right into what we see the Chinese are doing; accumulating massive amounts of gold, developing their gold market, internationalizing their gold market and the renminbi. This little peak at the China Gold Association’s chessboard is more confirmation of where we’re going! Gold is making its way into the international monetary system.

Koos Jansen
E-mail Koos Jansen on: koos.jansen@bullionstar.com

 

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After reading Koos Jansen’s weekly report above, you can now have a greater appreciation on the following London’s Financial times story released on Feb 2.2015 whereby Chinese banks are joining the new gold fix to start on March 1.  Maybe, these banks will be the fix as they start purchasing gold at higher prices say at $1500. USA per oz and thereby making the Comex price obsolete..

 

(courtesy London’s Financial times/Sanderson/Feb 2.2015)

From Feb 2.2015

Chinese banks to join new gold fix from March

Henry Sanderson

Monday, 2 Feb 2015 | 6:34 PM ET

The replacement for the near-century-old London gold fix will start in March, with the hope of attracting at least 11 members, including Chinese banks for the first time.

UK financial authorities are undertaking an assessment of financial benchmarks in the wake of a series of scandals, including over the gold fix.

The presence of Chinese banks would give the world’s second-largest consumer of the precious metal a greater say in the global gold price. Participants in the fix aggregate orders from clients on to a platform to determine the price.

“Interest has been very positive and creates a more diverse pool of participants, which includes Chinese banks,” said Ruth Crowell, chief executive of the London Bullion Market Association, a trade body for London’s gold and silver markets.

In October, China Construction Bank, the country’s second-biggest state-owned bank, was admitted as an ordinary member of the LBMA.

Industrial and Commercial Bank of China and Bank of China are also members.

 

London’s gold market is an over-the-counter market between buyers and sellers, while prices in China are set through trading on the Shanghai Gold Exchange.

However, the Financial Conduct Authority has yet to issue guidance about how it will regulate the new electronic auction, run by energy exchange operator Intercontinental Exchange, after banks opted out of a system that had been in place since September 1919 amid growing criticism that it favoured insiders.

 

“Without clear guidance from the FCA now and forthcoming final rules, participants will be unable to gain internal approval to take part in the new process,” the LBMA said in a letter to the FCA. “If a significant number of participants cannot get approval to take part due to lack of regulatory clarity, there will be a disruption.”

The old telephone system of fixing the daily gold price presently involves only four banks.

Last May, the system drew increasing scrutiny from regulators afterBarclays was fined £26 million for its failure to rein in an options trader who, in 2012, drove the gold price lower to avoid paying £2.3 million to one of the lender’s clients.

In December, the FCA said it would police seven UK-based financial benchmarks following the attempted manipulation of key rates for bank lending and foreign exchange, extending the regulation introduced in 2013 to strengthen Libor. It is set to regulate the gold fix from April 1, according to the LBMA.

“We announced a consultation on 22nd December into the seven benchmarks we would be regulating, which included the gold fix. That consultation closed on January 30 and we have said we intend to come forward with final rules before the end of the first quarter 2015,” the FCA said.

 

 

 

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(courtesy Chris Powell/GATA)

 

The U.S. government wouldn’t rig markets this way anymore, would it?

Section:

10p ET Thursday, February 12, 2015

Dear Friend of GATA and Gold:

Robert Wenzel of the Economic Policy Journal notes today that the Federal Reserve Bank of Cleveland has withdrawn its posting of and publicity for a 2011 study by the economists Michael D. Bordo, Owen F. Humpage, and Anna J. Schwartz that is critical of the U.S. government’s increasingly frequent intervention in the currency markets from 1962 to 1973:

http://www.economicpolicyjournal.com/2015/02/cleveland-fed-accidentally-…

But Wenzel also notes that the Cleveland Fed’s removing the study from its Internet site has not suppressed it, since a very similar version of it was published by the National Bureau of Economic Research, for which Schwartz worked. Economic Policy Journal has posted it and GATA has copied it to its own Internet archive here:

http://www.gata.org/files/USInterventionDuringBrettonWoodsEra1962-1973.p…

“Take this as an object lesson,” Wenzel writes. “The Fed does intervene in markets during crisis periods and it is very likely that the definition of ‘crisis’ has broadened since the 1960s to cover a lot more than assassinations of U.S. presidents.”

The Bordo-Humpage-Schwartz study is 88 pages long but a quick reading produces these conclusions:

1) The U.S. interventions in the currency markets were meant to defend the U.S. dollar’s standing as the world reserve currency while reducing the drain on U.S. gold reserves, since prior to 1971 the U.S. dollar was formally convertible to gold at an official price. U.S. interventions also were meant to minimize the advantages from a rising gold price that would accrue to the two biggest gold-producing countries, South Africa and Russia, whose regimes were considered hostile to U.S. interests.

2) Participating with the Federal Reserve in currency market intervention, the U.S. Treasury Department’s Exchange Stabilization Fund used futures contracts rather than outright sales and purchases of currencies because futures contracts could achieve just as much manipulation while preserving capital.

3) In 1961 the Federal Reserve and the German Bundesbank entered an arrangement in which they rigged the dollar-mark exchange rate and split the profits of the operation.

4) While currency market intervention was undertaken to stabilize exchange rates, it prompted concerns that it could become counterproductive.

For as Bordo, Humpage, and Schwartz write: “Some Federal Open Market Committee members, however, were concerned that prolonged intervention might actually interfere with balance-of-payments adjustment and actually prolong disequilibrium. [Federal Reserve] Governor Mitchell argued that if a foreign country had a balance-of-payments surplus and wanted to acquire gold, the United States should accommodate that country. The United States, therefore, needed a policy to facilitate an orderly loss of gold. Intervention might prevent a sudden loss of gold, but the danger was that absent a fundamental policy change, the demand for gold would grow and eventually worsen confidence in the official gold price.

“Similarly, Governor King feared that ‘people would be likely to put too much reliance on these operations to guard the dollar. …’ (FOMC, Minutes, 13 September 1961, p. 55). Governor Roberts also feared that if the Fed repeatedly disrupted the private market’s pricing process, the willingness of private market participants to make a market in foreign exchange might deteriorate (FOMC, Minutes, 5 December 1961, p. 60).

“For these reasons, the FOMC favored only temporary interventions that would offset transitional, disequilibrating disruptions in the foreign-exchange market and that would not attempt to avoid fundamental market adjustments. As time would tell, however, distinguishing between temporary, disequilibrating developments and those of a more fundamental nature was extremely difficult.”

Or as a high school graduate told GATA’s conference in Washington seven years ago —

http://www.gata.org/node/6241

— three years before Bordo, Humpage, and Schwartz wrote their study:

“The problem with central banking has been mainly the old problem of power — it corrupts.

“Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest — to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.

“And so we have come to an era of daily market interventions by central banks — so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all.

There seem to be two ways of looking at the Bordo, Humpage, and Schwartz study:

1) While its time frame ends in 1973, the study remains valuable, as Wenzel suggests, for demonstrating government interests that endure and policy mechanisms that remain available to governments today.

Or 2) the study is irrelevant, just ancient history, because, as Casey Research founder Doug Casey suggests —

http://www.gata.org/node/15090

— governments long ago lost all interest in how their currencies might be valued against gold and against other currencies and never intervene in the gold market to suppress its price to support their currencies — that governments have lost their desire for power, that nations no longer have interests in regard to the rest of the world, and that liberty and free markets are triumphant now and forever.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

 

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For your interest..

 

(courtesy GATA)

 

25% of physical gold buyers are crazy, metals executive says

Section:

At least they haven’t been charged by the government of Quebec with tax fraud:

http://business.financialpost.com/2013/12/09/kitco-metals-among-gold-tra…

* * *

From CNN, Atlanta
Thursday, February 12, 2015

A lot of people who buy bits of physical gold aren’t looking to make a bracelet or ring. They buy gold because they believe disaster is imminent.

These investors are convinced gold will spike to $10,000 an ounce (it’s currently around $1,225) when the U.S. government implodes, said Peter Hug, an executive at metals retailer Kitco.

Hug calls these people “crazies” and says they form a substantial amount of the U.S. physical gold market — at least 25 percent. …

… For the remainder of the report:

http://money.cnn.com/2015/02/12/investing/buy-gold-market-fear/

 

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We reported on this yesterday, the fact that Sweden has cut interest rates below zero and thus entering the NIRP gang.  Ambrose Evans Pritchard discusses the significance of this nation entering the currency wars:

 

(courtesy Ambrose Evans Pritchard/GATA)

Sweden cuts rates below zero as currency wars spread

Section:

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, February 12, 2015

Sweden has cut interest rates below zero and launched quantitative easing to fight deflation, becoming the latest Scandinavian state to join Europe’s escalating currency wars.

The Riksbank caught markets by surprise, reducing the benchmark lending rate to minus 0.10 percent and unveiled its first asset purchases, vowing to take further action at any time to stop the country falling into a deflationary trap. The bank presented the move as precautionary step due to rising risks of a “poorer outcome abroad” and the crisis in Greece.

Janet Henry from HSBC said the measures are clearly a “beggar-thy neighbor” manoeuvre to weaken the krone, the latest such action in a global currency war that does little to tackle the deeper problem of deficient world demand.

The move comes as neighboring Denmark takes ever more drastic steps to stop a flood of money overwhelming its exchange rate peg to the euro and tightening the deflationary noose. …

… For the remainder of the report:

http://www.telegraph.co.uk/finance/economics/11408950/Sweden-cuts-rates-…

 

 

end

 

(courtesy John Rubino/Dollar Collapse blog)

 

Gold In A Negative Interest Rate World

 

Submitted by John Rubino via Dollar Collapse blog,

Global capital is looking for a place to hide. But after decades of enthusiastic currency creation and financial engineering, there’s way too much of it for any one country to accommodate. This mismatch between money knocking at the door and available space is leading the handful of remaining safe havens to put up “no vacancy” signs in order to avoid being swamped. Among the things they’re trying is negative interest rates. That is, if you want to deposit money in a Swiss or Danish bank or lend money to the Japanese or German governments you now have to pay them for the privilege.

This sounds a little crazy, and from a historical perspective it is indeed highly unusual. But it’s exactly what you’d expect in a world of ever-increasing debt and ever-more-exotic financial speculation: Too much bad paper gets created which eventually blows up, causes instability and leads worried investors to value return of capital over return on capital. They all pile into whatever seems most likely to still exist a decade hence, forcing (or enabling) the managers of those assets to charge rather than pay interest.

Here’s a sampling of recent stories on the subject:

Less Than Zero: When Interest Rates Go Negative

In Denmark, Depositors to Pay Interest to Bank

Negative interest rates are hammering Germany’s savings banks

Riksbank Preview: Next in Line for Negative Interest Rates?

Swiss Impose Negative Rate Echoing 1970s Amid Russia Crisis

Get Ready For Negative Interest Rates In The US

Now, there are lots of interesting sub-topics to explore in a world of negative interest rates. But let’s start with the role of gold. Traditionally the ultimate safe haven, it is the one form of money that can’t be messed with and therefore the place to be when the messing gets out of hand.

Lately, for instance, it has spiked in countries with emerging currency crises. In Russia, Argentina, Greece and in fact the entire eurozone, the local-currency price of gold has risen faster even than the exchange rate of safe haven currencies like the US dollar and Swiss franc. And with interest rates going negative in much of the world, a person with capital to allocate confronts a new and very interesting risk/return calculus. Consider:

On a cash flow basis, gold sitting in a vault actually costs money in the form of storage fees. In normal times — back when government bonds and bank deposits yielded, say, 6% — the spread in favor of the bond and against gold was pretty compelling. But what happens when interest rates go negative, so that the cash cost of owing gold and government bonds is pretty much the same at around 1% a year? Now our hypothetical capital allocator has to ask some new questions. Among them: Has a fiat currency ever had a sustained period of rising value? That is, has there ever been deflation for more than just a short while in a system where a central bank could create unlimited amounts of currency? The answer is no, for an obvious reason: Deflation is bad for sitting politicians because it makes both government and business debts harder to manage and therefore elections harder to win.

In such circumstances money printing is pain-free. The sound-money advocates who normally criticize debt monetization are silenced by falling prices. Inflationists, meanwhile, love easy money and can always be counted on to cheer low interest rates and currency devaluation.So when fiat currency deflation becomes a possibility, it is always and everywhere met with a tidal wave of newly-created money, which eventually converts deflation into inflation.

This has been happening on a rolling basis around the world. When one country or currency bloc slows down its central bank opens the monetary spigot, interest rates plunge and the currency falls against its peers.

So here we are, with gold and government bonds costing about the same to own, but governments actively trying to lower the value of their bonds and bank accounts while gold is rising wherever trouble erupts.

The logical conclusion is that if gold and cash both cost the same to own, then maybe gold — which has held its value over millennia while every previous fiat currency has evaporated — is the better bet.

In Switzerland, this is apparently already happening:

Swiss Bank Says Investors Favor Gold Amid Charges on Cash

(Bloomberg) — Investors are buying more gold as an alternative to hold Swiss franc cash deposits, according Vontobel Holding AG, a Swiss bank and wealth manager.

“We keep noticing that gold is coming back into favor with investors,” Vontobel Chief Executive Officer Zeno Staub, 45, told reporters Wednesday after the Zurich-based company announced full-year earnings.

Concerns that Greece may abandon the euro and Ukraine may be headed for a wider conflict have spurred demand for haven assets. Gold has climbed 4.2 percent this year, even as the dollar strengthened on prospects of higher U.S. interest rates. Investors’ holdings in gold-backed funds are near the highest since October.

Vontobel boosted the proportion of gold in discretionary managed investments by 2 percent after the Swiss National Bank increased charges on banks that use it as a custodian for franc deposits, Staub said. The central bank introduced a 0.75 percent negative interest rate on some deposits as of Jan. 22.

end

(courtesy Dave Kranzler/IRD)

 

 

The Web Of Deception – An UnNatural Price Correction

This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that – John Perkins, “Confessions of an Economic Hit Man”

Rory and I discuss the significance of the Baltric Dry Index, the raid on the precious metals sector by the Fed/Bullion Banks and the significance of the dollar rally: