Wednesday, 19 November 2014

Russia and Kazakhstan buying gold but prices still sluggish

With international gold prices continuing to spiral downward, the central banks of some nations, including Russia and Kazakhstan, have succeeded China's "dama" investors or stay-at-home mother investors, as well as individual investors elsewhere, in carrying out bottom-fishing investments in gold, in the belief that gold prices may bottom out soon.


For the moment, market players are watching the upcoming Nov. 30 referendum in Switzerland closely, which will see a vote on increasing the share of gold in the nation's reserves to 20%, a move, that if approved, may lead to gold purchases of 1,500-1,800 tons in five years, 7%-10% of the global annual gold output, and boost international gold prices, now at a four-year low, by 17%, according to state-owned Dutch bank ABN AMRO.


The possible upturn will bring great relief to numerous dama investors, who rushed to buy gold last year, after gold prices finally slumped after a seemingly endless rise, seizing what appeared to them a hefty bargain for a commodity long regarded as a premium tool for value preservation. Many of them have suffered about 30% losses on paper, as the prices slipped further. As of Nov. 6, gold prices had dropped to US$1,130 per ounce, a far cry from the peak level of US$2,000, attained in the wake of the bullish market lasting 10 years before 2012.


As a result, China's gold consumption tumbled 21.4% year on year to 754.8 tons in the first three quarters this year, with the purchase of gold bars plunging 62.6% to 119.4 tons, according to the China Gold Association. At the Shanghai Gold Exchange, the world's largest trading platform for physical gold, gold is being traded at prices lower than international benchmark prices, in contrast to the past when transactions there boasted a premium.


While the gold market in China is waning, the roles of India, Russia, and Kazakhstan on the international gold market have been increasingly prominent. Gold-jewelry purchases in India jumped 60% year on year to 183 tons in the third quarter, at the same time that the Russian central bank bought 55 tons of gold, 59% of the total net gold purchase by central banks worldwide, according to the World Gold Council (WGC). In the first three quarters, the Russian central bank bought 115 tons of gold, including 109 tons in the second and third quarters.


Other central banks have also been upping their gold reserves. In the third quarter, central banks worldwide net-purchased, for the 15th quarter in a row, buying 92.8 tons of gold, though this was down 9% year on year. The central banks purchased 100 tons of gold quarterly in six of the past seven quarters, much higher than the 2010 level. "Central banks have been overbuying gold, to pluralize their assets in reserve and respond to geopolitical crises," said Liu Zhongguang, director and investment superintendent for Fareast region of WGC, according to Beijing-based China Securities Journal.



Liu Zhongguang 劉中光