Tags: china | russia | gold | currency | war

Barron's: China, Russia Buy Gold in Case of Currency War

Barron's: China, Russia Buy Gold in Case of Currency War
(Daniel Draghici/Dreamstime)

By    |   Friday, 13 September 2019 02:07 PM

Russia and China reportedly are stockpiling gold to diversify their foreign-exchange reserves as emerging markets also have bolstered precious-metal holdings as prices hover near their highest levels in more than six years.

To be sure, global gold demand rose 8% in the first half of this year to the highest since 2016, driven by central bank buying and a flood of investment into gold-backed exchange traded funds (ETFs), the World Gold Council said last month.

The WGC said central banks bought 224.4 metric tons of gold in the second quarter, taking their purchases to 374 metric tons over the first half. That was up from 238 metric tons in 2018, and the most for any first half since at least 2000.

“Central bank buying is, of course, important to the supply/demand dynamic for the metal, but is much more important in terms of sentiment toward the metal,” Brien Lundin, editor of Gold Newsletter, recently told Barron's. When central banks are “buying as heavily as they are, it provides cover and a rationale for other central banks to do the same.”

Russian central bank gold reserves stand at 2,219.2 metric tons, according to the World Gold Council, or WGC, based on the latest data available in September from sources including the International Monetary Fund. China’s holdings are at 1,936.5 metric tons.

Given the latest prices, with the most-active gold futures contract settling at $1,499.50 an ounce on Friday, and about 32,151 troy ounces in one metric ton, the value of Russia’s gold reserves is at roughly $107 billion.

The moves are due to concerns about the outlook for currencies, including the dollar and the euro, says Mark O’Byrne, research director at GoldCore in Dublin. “While the gold tonnage demand from central banks in recent months has been significant and near records, gold remains a tiny fraction of most central banks’…foreign-exchange reserves,” he says, adding that the trend is “sustainable and indeed may accelerate.”

O’Byrne also explained to Barron's that the risk of the trade war turning into a currency war may also be fueling central bank diversification into gold.

“Price is not the determining factor in central bank buying—rather, [the banks] are more likely being guided to secure an allocation of a percentage of their overall foreign-exchange reserves in gold bullion,” says O’Byrne.

“China and Russia are obviously intent on insulating themselves from a dollarized global economy, and gold seems to be a very important part of that strategy,” Lundin says. “While gold still represents a relatively small portion of China’s total foreign reserves…[the Chinese] seem to feel that gold will become more valuable over time, while the dollar will become less so.”

Analysts said that dovish monetary policy adopted by global central banks along with concerns of a glut in negative-yielding government debt globally will continue to support bullion in the longer term, Reuters said.

“Gold is going to remain around these levels or drift higher. Gold is actually paying more than any other 30-year bond, and every small move actually pays more than bonds,” said an analyst based in New York.

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Russia and China reportedly are stockpiling gold to diversify their foreign-exchange reserves as emerging markets also have bolstered precious-metal holdings as prices hover near their highest levels in more than six years.
china, russia, gold, currency, war
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2019-07-13
Friday, 13 September 2019 02:07 PM
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