This week has seen very positive developments for gold bulls. Gold broke strongly through resistance at $1217 to begin consolidation over $1220 to close Friday at $1220.50. On Tuesday, gold was up roughly $23 on heavy trading volume (Remember the old saying, “Volume is the weapon of the Bull!”). Gold surged through its 200 day moving average at $1209 decisively. Silver has followed suit with a move up from $16.30 on Monday to close Friday at $17.25, up over $1. A weaker US dollar, weak macro-economic data and demand from China are cited by analysts as factors contributing to the rally.
Central banks continue to be strong buyers of physical gold with purchases of 119 tonnes so far this quarter. Central banks have bought gold for seventeen consecutive quarters. Central banks around the world continue to diversify assets away from the US dollar.
Demand for Swiss Physical Gold Exports is at Historic Highs
Switzerland produces no gold internally so imports and exports of Swiss gold should roughly balance out as the Swiss import gold to fill orders for export buyers. Swiss gold exports for the first quarter of 2015 total 485 tonnes which annualizes to just under 2000 tonnes. This would be the second highest year of Swiss gold exports when compared to the all time record of 2083 tonnes exported in 2013.
This shows that the demand for physical gold is strong and is providing significant price support for gold prices despite pressure from the paper traders. At some point, there will be a disconnect in price between paper god and physical gold as the demand for physical gold overwhelms the paper price. As Jim Rickards, author of The Death of Money: The Coming Collapse of the International Monetary System has said in the recent past- “it will not be a matter of what the gold price is, but of availability.”. We will continue to track the flow of physical gold in world markets for you and as always, keep you informed.
China Moves Ahead to Take Over Pricing of Physical Gold
China is by far the largest buyer of physical gold in the world and has amassed thousands of tonnes of gold reserves to rival the holdings in the US. China is lobbying the International Monetary Fund (IMF) to include the Yuan as a world reserve currency. Gold reserves have a large part to play in that effort.
China also has the largest private market for gold in the world and by 2013 had eclipsed South Africa as the largest producer of gold in the world. According to Simon Mikhailovich, managing director at Tocquville Bullion Reserve:
“It is the Chinese view that all great currencies have gained prominence in some measure because of the hard asset reserves the government standing behind the currency. Gold reserves both from the government and reserves held by the population are a key factor for economic security for them,”
The Shanghai Gold Exchange will establish a new standard gold price for physical gold based on delivery of 1 kilogram bars in competition with the London Bullion Market Association price “FIX” which mirrors the paper price of gold futures. Western banks are heavily involved with China in this process.
Said Mikhailovich, “I think what the Chinese are trying to do is creating a real market that reflects supply and demand for physical gold.”. Higher gold prices will support the Yuan and therefore the Chinese effort to attain their goal of inclusion by the IMF as a world reserve currency. The decision from the IMF is due later this year, to take effect in 2016.
Buy Ahead of the Rush
Jeff Gundlach, founder of DoubleLine Capital and formerly the manager of the $9.3 billion Trust Company of the West Total Return Bond Fund dubbed by Barrons as “The King of Bonds” and included in “The 50 Most Influential” list of Bloomberg Markets magazine was recently asked for his best investment idea for the next six to twelve months.
His answer- gold. A top mainstream bond fund manager recommending gold as his top investment idea is a major wake up call.
Find out how to defend your assets against rapidly changing and uncertain financial times by calling one of our precious metal experts.