Political instability sent the modest troy ounce to $2,344 in January 1980, in today’s dollars: the price shot up to $850 (at the time) and fell almost immediately back down. Today’s situation – so far – is different. The gold price has risen gradually, prompted more by monetary events than by international strife. The falling dollar has a lot to do with it: fixing the dollar at its 2000 euro exchange rate would see a current gold price of $1,020, not $1,420. But if monetary phenomena provide the context for the gold price, what would a spot of political instability do? Record-breaking has become commonplace – and the price could rise to $2,300 per troy ounce without breaking it.
South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio.
Such a move could prove significant to the international gold market as Seoul currently only holds about 14 tonnes of the lustrous metal, equal to just 0.2 per cent of its $290bn reserves at current prices. By contrast, Italy and France each hold just under 2,500 tonnes of gold, amounting to more than 65 per cent of their reserves. Read more
Europe’s central banks have all but halted sales of their gold reserves, ending a run of large disposals each year for more than a decade.
The central banks of the eurozone plus Sweden and Switzerland are bound by the Central Bank Gold Agreement, which caps their collective sales. Read more
Ben Bernanke failing to blaze like a news comet in front of the House budget committee just now: US recovery steady but unspectacular; limited impact from Europe crisis so far; need to do something about the deficit in the medium term. The usual. One query came up from Paul Ryan (R-WI), the committee’s hawk-in-residence: why is gold hitting an all-time high? Is it a general flight from fiat currencies because investors think central banks are going to inflate the debt away?
Bernanke, predictably, thought (i.e. promised) not, offering the observation that gold was out there on its own “doing something different from the rest of the commodity group” and confessing that he didn’t fully understand movements in gold prices. Looking at long-term yields almost across the board, except for the default risk countries like Greece, it’s hard to argue he’s wrong. There are some anomalies that encourage investors to hold government debt, like the UK pension regulations which created artificial demand for gilts for a long time (one of the reasons the Debt Management Office was able to flog so many long-dated bonds), but not to this level. Gold still looks like the outlier, not the bellwether.
Venezuela is an unlikely taker for the IMF’s planned bullion sale.
The country plans to invest about $300m importing equipment to mine 36 tonnes per year. Tailings at a number of old mines show reserves of around 170 tonnes in the southern state of Bolivar. Read more
Traders are reporting interest from Asian banks in gold on sale from the IMF, says Reuters. Read more