Demand for physical gold remains strong as bullion banks suppress prices.
September has been a poor month for precious metals. Gold is down 5.2%, despite it being gold’s strongest month from a seasonal perspective. The price fall means that gold is heading for the first quarterly loss this year.
As a dollar-driven rally spurred by U.S. economic growth and after the U.S. Federal Reserve indicated it could raise interest rates sooner than expected earlier this month, gold prices have come under pressure for the entire month of September. However, as there has not been any dumping of the physical metal and as demand remains relatively robust one can surmise that this selling can only be the nefarious activities of the large bullion banks trying to suppress the price of the yellow metal once again and thus give the general public that illusion that owing gold is not as good as owning the U.S. dollar or equities.
The Federal Reserve and its bullion bank agents (JP Morgan, Scotia, and HSBC) have been using naked short-selling to drive down the price of gold since September 2011. The latest containment effort began in mid-July of this year, after gold had moved higher in price from the beginning of June and was threatening to take out key technical levels, which would have triggered a flood of buying from hedge funds.
The Fed and its agents rig the gold price in the New York Comex futures (paper gold) market. The bullion banks have the ability to print an unlimited supply of gold contracts which are sold in large volumes at times when Comex activity is light.
On the geopolitical front, the crisis developing between Western nations and the Islamic militant group ISIS is taking on a new dimension. For now, mainstream media have forgotten about Ukraine and Gaza.
On Friday, American-led coalition warplanes struck at targets outside the city of Deir el-Zour on the Euphrates River. Coalition planes pounded a dozen makeshift oil-producing facilities in the same area on Thursday, trying to cripple one of the militants' primary sources of cash — black market oil sales that the U.S. says produce up to $2 million a day.
Syrian activists said the American-led air campaign also hit the Tanak oil field as well as the Qouriyeh oil-producing area in Deir el-Zour on Friday. It said air raids also targeted the headquarters of the Islamic State group in the town of Mayadeen southeast of Deir el-Zour city.
The coalition, which began its aerial campaign against Islamic State fighters in Syria last Tuesday, aims to destroy the extremist group, which has created a proto-state spanning the Syria-Iraq border. Along the way, the militants have massacred captured Syrian and Iraqi troops, terrorized minorities in both countries and beheaded two American journalists and a British aid worker.
Denmark announced that it would also send seven F-16 fighter jets to take part in the airstrikes in Iraq; two days after the Netherlands did so. And, on Friday British lawmakers agreed to join the U.S. led coalition and launch airstrikes on Islamic State in northern Iraq, but the motion did not endorse airstrikes in Syria.
Prime Minister David Cameron described the moves as critical to national security, arguing that facing down terrorists has become a matter of urgency.
Meanwhile the World Gold Council’s second-quarter gold-demand trends report showed U.S. jewellery purchases totaled 26.1 metric tons, a 15% rise over 2013’s second quarter and more than double the tonnage purchased as bars and coin investments. This isn’t a one-quarter anomaly, either, as the data showed that for the 12 months ending with the second quarter, U.S. gold-jewellery demand was up 18% over the time period in 2013 at 125.6 tons.
Sally Morrison, managing director of marketing and jewelry at the World Gold Council, said there’s been consistent growth in the U.S. jewellery market for the past five quarters, following drops in the price of gold, starting last year. Unlike in China and India where the reaction last year to price falls was quicker, it’s taken some time for lower gold prices to trickle into the U.S., she said, with the effects of cheaper prices likely being felt only beginning this year.
While most Wall Street analysts continue to trim down their forecasts for gold prices due to the rising expectations of a U.S. rate increase in 2015 and the geopolitical risks being more under control in Ukraine-Russia and the Middle East, the International Monetary Fund (IMF) has shown that Russia, Kazakhstan, Turkey, and Ukraine have added over 35 tons of gold in their reserves in August.
The latest official gold reserve data from the (IMF) shows that Russia has again added to its gold reserves in August, with the Central bank of the Russian Federation purchasing 232,510 ozs (7.23 tons) and bringing its total gold reserves to 35.769 million oz. or 1,112.5 tons.
The National Bank of Kazakhstan also purchased a massive 795,213 oz. or 24.7 tons in August bringing its total gold reserves to 5.848 million ozs (181.9 tons). Turkey was also a gold buyer in August and the Turkish central bank adding 96,783 ozs (3 tons) to bring its total official gold reserves to 16.45 million ozs (511.6 tons), which is the world's 12th largest official gold holding.
According to the IMF data, other countries which added to their gold reserves in August included the central banks of Azerbaijan and Ukraine.
Kazakhstan now has the world's 23rd largest holdings, just behind the Philippines which has 194.4 tons of gold reserves.
With 1,112.5 tons, Russia remains the world's 6th largest official gold holder, ahead of China (1,054.1 tons) and Switzerland (1,040 tons).
The Swiss National Bank (SNB) has not been a gold buyer recently but this may change if a Swiss gold referendum to be held in November goes through, which would force the SNB to maintain 20% of its reserves in gold and to repatriate all gold held abroad back to Switzerland.
It is widely believed that China's gold reserves are understated as I have frequently suggested. And, I also believe that the gold holdings of the U.S. are completely overstated and I very much doubt that they possess the 8000 odd tons they claim to have.
The ECB and other central banks including the Nationale Bank van België/Banque Nationale de Belgique, the Deutsche Bundesbank, Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Banco de España, the Banque de France, the Banca d’Italia, the Central Bank of Cyprus, Latvijas Banka, the Banque centrale du Luxembourg, the Central Bank of Malta, De Nederlandsche Bank, the Oesterreichische Nationalbank, the Banco de Portugal, Banka Slovenije, Národná banka Slovenska, Suomen Pankki – Finlands Bank, Sveriges Riksbank and the Swiss National Bank recently announced details of the fourth Central Bank Gold Agreement
In the interest of clarifying their intentions with respect to their gold holdings, the signatories of the fourth CBGA issue the following statement:
Gold remains an important element of global monetary reserves;
The signatories will continue to coordinate their gold transactions so as to avoid market disturbances;
The signatories note that, currently, they do not have any plans to sell significant amounts of gold;
This agreement, which applies as of 27 September 2014, following the expiry of the current agreement, will be reviewed after five years.
About the author
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.
His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.
David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
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Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.