SWOT Analysis: Fastest Rate of Central Bank Gold Buying Since 1971

Monday, February 4, 2019
By Paul Martin

By: Frank Holmes, US Funds
GoldSeek.com
Monday, 4 February 2019

Strengths

The best performing metal this week was gold, up 1.11 percent. Gold traders were bullish on the outlook for a 12th straight week and the most bullish in five weeks, according to the weekly Bloomberg survey. The yellow metal is up more than 2 percent for the year and is set for a fourth monthly gain. This comes as the dollar is down for a third month. Gold saw a boost in particular on Wednesday when the Federal Reserve signaled that it’s moving away from its bias toward higher U.S. borrowing costs, which boosts the appeal of gold.

Demand for gold in China, the world’s number one consumer, rose 5.7 percent in 2018 to 1,151 tonnes, says the China Gold Association. Jewelry consumption was also up 5.7 percent, while bar demand was up 3.2 percent. China, also the world’s top gold miner, saw output fall 5.9 percent to 401 tonnes last year. According to the World Gold Council (WGC), demand will remain steady in 2019, even as there are signs of slowing economic growth and political uncertainties.

U.S. Mint data showed this week that gold coin sales rose to 65,000 ounces in January, the most in two years. This comes after several months of “horribly lacking” sales, says Peter Thomas at metals broker Zaner Group. Net purchases of gold holdings in ETFs are now at 2.01 million ounces for the year, according to data compiled by Bloomberg. For the first time in what seems like forever, ETFs also added silver to their holdings. On Thursday alone there were 1.18 million troy ounces added – the largest one-day increase since November 13.

Weaknesses

· The worst performing metal this week was palladium, down 0.66 percent as hedge funds cut their net long position to the lowest in six weeks. U.S. pending home sales fell in December for the third straight month. This is another sign that the housing market is weakening amid elevated property prices and higher borrowing costs, writes Bloomberg. GFMS wrote in a report this week that it sees gold at $1,292 an ounce in 2019, compared to current prices sitting around $1,309. They write that demand for defensive assets such as gold is likely to pick up on deepening economic concerns, but that physical markets are likely to be subdued because of high price levels.

· Venezuela is preparing to send 15 metric tonnes of its central bank reserves to the UAE, as the country’s economy struggles and President Nicolas Maduro faces opposition from within and abroad to step down as leader. U.S. National Security Advisor John Bolton wrote in a tweet on Wednesday: “My advice to bankers, brokers, traders, facilitators, and other businesses: don’t deal in gold, oil, or other Venezuelan commodities being stolen from the Venezuelan people by the Maduro mafia.”

· After several weeks of increasing gold reserves week-on-week, data from the Turkish central bank showed that reserves fell $555 million from the prior week. As of January 25, Turkey’s holdings were worth $19.9 billion, down 22 percent year-over-year.

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