Central Banks ‘Vote For Gold’ Due To Sovereign And Currency Concerns
Friday, 26 July 2013
Gold is on course for its third week of gains, buoyed by a weak dollar, no definite end to quantitative easing and continuing ultra loose monetary policies. Central bank gold buying is also supporting gold.
Premiums in India are $20 per ounce over London prices as demand outstrips government restricted supply before the festival season on the subcontinent.
Premiums in China have come down but remain robust at $12 per ounce and gold forward rates (GOFO) remain negative in the near term – 1, 2 and 3 months (see table above and chart below).
Central banks remained net buyers of gold last month as seen in the IMF data released overnight.
Many emerging-market countries with considerable foreign exchange reserves continue to diversify their fx reserves, most of which are in dollars and euros, and increase their gold reserves.
Emerging market central banks have increased their holdings of the monetary asset over the past few years as the sovereign debt crises in the EU, U.S. and Japan put pressure on reserve currencies such as the Japanese yen, U.S. dollar and the euro.
Falling gold prices to their lowest levels in almost three years made gold more attractive to many central banks.