Notable Developments in Gold

[Rowdy]

The price of gold is essentially unchanged from where it finished last year. There have been several interesting developments. Of particular note, China, India and Russia were significant buyers last month.

It appears that the UK exported gold to Switzerland where it was refined and then shipped to China and India. Russia continues to accumulate gold even as its hard currency reserves fall.

According to official Swiss data, its shipments of gold to China almost doubled in March from February to 46.4 metric tonnes. Swiss exports of gold to India doubled to a four month high of 72.5 metric tonnes. On the other hand, Swiss gold exports to Hong Kong fell by about a quarter to 30 metric tonnes in March.

Overall Swiss exports of gold, which are not sensitive to the strength of the Swiss franc, rose 65% in March to 223.3 metric tonnes. This is the highest in at least two years. Imports rose 51% to 281.6 metric tonnes, which is a new high since the time series began. Imports from the UK jumped six-fold to 97.2 metric tonnes.

Russia bought about 31.1 metric tonnes of gold in March. This is about three times more than Russia typically has been buying recently. However, purchases slowed in January and February. The purchases in March seemed to be a "catch-up" as if Russia gold purchases are on a planned program.

Russia's gold accumulation has more than doubled its holdings since the middle of 2009 and tripled them since 2005. Russia's gold holdings amount to 1.2k metric tonnes of gold. It is the fifth largest national holding behind the US (8.1k tonnes), Germany (3.4k tonnes), Italy (2.5k tonnes), France (2.4k tonnes). Russia's gold holdings have risen over the last couple of years, as its overall reserves have fallen.

Gold accounts for almost 15% of Russia's reserves. Major industrialized countries have relatively low levels of reserves relative to trade and capital flows. Their gold holdings are relatively large. Official gold holdings account for nearly three-quarters of US reserves. German official gold holdings are nearly 69% of its reserves. Italian and French holdings are proportionately a little smaller than Germany's. China's gold holdings may be about 1% of its reserves, which says more about its large reserves than it does about its gold.

Russia appears to hold a 100 tonnes more than China though there are suspicions that China's holdings may be under reported. Indeed, the PBOC has not undated its official holdings since 2009. There is some speculation that it may have more than doubled its holdings since its last update. The cloak of secrecy may be lifted if China wants to bolster its case for being included in the SDR. We have previously made a similar point about the currency allocation of its currency reserves. The IMF will hold meetings next month about the SDR and a final decision will be made in early Q4.

India holds about 558 metrics tonnes of monetary gold. It accounts for about 7% of its reserves. It also has an estimated 20.6k metric tonnes of gold in private hands and another 10% more in Hindu temples. India's gold imports account for nearly a third of its trade deficit. The Indian government is wrestling with ways to tap into the large private sector gold holdings. Next month it is expected to announce new initiatives, such as allowing gold deposits at banks with fixed interest rates, the sale of gold bonds and gold coins.

The IMF's data indicate that world's currency reserves were valued at $11.6 trillion at the end of 2014. The gold market is far too small to replace even a significant part of the paper money. A couple of years ago, a senior PBOC official acknowledged this by indicating that China could only invest 2% of its foreign exchange holdings in gold because of the size of the gold market. Only Russia, where reserve holdings are falling appears to be really diversifying away from paper money. This is more politically motivated than economic. The opportunity cost in the low interest rate world is marginal. This will change if/when rates rise.

Credits: Mark 2 Market @ ZH

@Peter @Mad Indian @Rashna @maomao @Tshering22 @Sakal Gharelu Ustad

 

[Rashna]

Some interesting information about Gold

Gold has held its value in 2014 in all but one major currencies (USD). The slight loss of Dollar gold in 2014 (0.8% year-on-year) was largely offset by gains in all other currencies. That is certainly not the type of message you will hear in the mainstream media.

Another way to look at the same data is to compare the value of major currencies with gold. That is what the next chart shows (courtesy: Home - U.S. Global Investors). Mind that Dollar gold is used for the comparison in the chart. Also, mind that the value of the U.S. Dollar is not on the chart as it was the obvious (and only) winner among the major currencies in 2014. S

Note that the Indian Rupee is the best performing currency after gold against the USD.

 

[Rashna]

India's Sensible Plan To Mobilise The Gold Reserves

This looks like a very sensible policy goal in India, a desire to mobilise the country's huge stocks of gold in private hands. However, I've more than a sneaking feeling that the precise policies being offered to achieve the goal aren't quite what is needed. The basic goal being that there's an awful lot of capital and savings tied up in the gold hoards in that private sector. And it would probably be better if that capital were circulating, adding to the capital stock of the economy, rather than just sitting there and glittering. So, the idea of mobilising it sounds just great. But how to do so? I think I would argue that the best policy would be one that pretty much ignores gold: a policy of making sure that everyone is banked would be better.

Here's the basic idea:

In his mission to build India's economy into one that could someday rival China's, Prime Minister Narendra Modi would like to mobilize the roughly 20,000 tons of gold thought to be in private hands, 2,500 tons of it in major Hindu temples. Demand here is so high that gold imports have in recent years accounted for nearly 30 percent of India's trade deficit, and many people prefer to keep it in the form of jewelry, making it difficult to trade or convert into cash.

Economists call it "idle gold," and Mr. Modi's team would like to see it used for trade and investment. In May, the government is expected to introduce a plan to induce Indians to deposit gold in banks, offering fixed interest rates for a "metal account." There are also plans to issue gold bonds and, for the first time, to issue gold in the unsentimental but fungible form of a coin.

In technical terms that's what we might call "a whole lotta gold". Something in the $600 to $700 billion range in value. And in a capital poor country like India we might well think that that sort of sum would be better feeding the fires of industry rather than just being jewelry and savings. So, trying to mobilise it through gold bonds and so on seems reasonable. But we might also want to take a step back and think why it is that Indians save using gold rather than, say, a bank account?

Of course, tradition plays some part in this. Out in the country a little bit of gold jewelry can represent the household's savings. In dire times it's possible to pawn, or even sell it, in order to raise needed funds. So the function of such gold holdings is more than just adornment: it's also a method of saving.

However, from a macroeconomic point of view we'd rather people saved in a manner that then allowed other people to use those savings to invest. And this is not what saving via gold really allows. We'd much prefer that people saved their emergency money in banks, so that other people (through the miracle of fractional reserve banking and maturity transformation) could then borrow that money to go build factories, homes and jobs. The question thus is why doesn't this happen?

One obvious reason is simply historical and cultural. But such practices always come from somewhere. And there's two that we can quickly identify. The first being that the value of cash money (and thus bank deposits and so on) in India has not been stable historically. Thus savings tend to end up somewhere which is a store of value, not in a currency being inflated away. Given the much better performance on inflation in recent years this reason is fading away somewhat. The second is that still vast numbers of Indians are entirely unbanked. They simply don't have an account and no real possibility of gaining one. Either for geographic reasons or because the banking system as it is just isn't set up to deal with the small amounts that many people are dealing in.

There are official attempts to change this being enacted and we've also got the spread of mobile phones. There's many examples of things similar to M-Pesa being trialed in India and these will change attitudes as well. For one of the things that really surprised people about micro-banking and such systems as M-Pesa was the way that the poor really, really, desired to have a safe and secure savings method.

All of this means that things like gold bonds might well help at the margins. But my opinion is that the more effective methods will come from expanding poor peoples' access to banking services, both through the plans already being mooted (for example, the idea of moving from food aid in kind to cash payments requires that everyone have a basic banking account) and also through that technological change of mobile banking. Nothing at all wrong with what is being done and the policy aim is entirely sensible. Only that the goal is more likely to be achieved through the more basic changes going on in the economy as a whole rather than these specific measures.


India's Sensible Plan To Mobilise The Gold Reserves - Forbes

 

[Rashna]

The Mystery Of China's Gold Holdings Is Coming To An End

Back in 2011, Zero Hedge first asked the key question that matters to the gold market: what are China's true holdings of physical gold.

As is well known, the last time China did provide an update of its official gold inventory was in early 2009 when it disclosed to the IMF some 1,054.1 tons of gold held at the PBOC headquarters (or elsewhere). The problem is that this number is now very outdated, and substantially undercuts China's true gold holdings.

To be sure, there has been extensive speculation on the topic, suggesting China's current gold may be anywhere between 3,000 and 8,000 tons (or more) but the reality is that until Beijing itself decides to officially reveal the number, speculation will remain just that. And, as we and many others, Bloomberg included, have noted such a revelation will not come in a vacuum, but will be largely a political statement about the preparedness of the Renminbi to replace the US Dollar as the world's reserve currency.

http://www.zerohedge.com/news/2015-04-21/mystery-chinas-gold-holdings-coming-end