LAWRIE WILLIAMS: Gold price picks up strongly in Europe amid strong CB demand report.
We had thought things probably couldn’t get any worse for the gold investor until, that is, late October trade in the U.S. took the price down to the mid $1,630s. But respite now looks as though it may be in store for aficionados of the yellow metal, at least in European trade at the beginning of November. The start of the new month saw a sharp rise in price back to the $1,650 level and above, amid reports from the World Gold Council (WGC) of record Q3 gold demand from central banks. It remains to be seen whether this represents the sea change in sentiment towards the precious metal that the gold bulls have long awaited, or is yet another false dawn. They will also have gained some encouragement from reports of some gold ETF inflows, albeit small ones, into non-U.S. exchange traded funds, after seemingly months of constant withdrawals.
It is early days yet, but the WGC analysis suggests that Q3 central bank gold inflows totalled almost 400 tonnes, reckoned to be over four times the amount the central banks added to their reserves in Q3 2021. The WGC thus puts the central bank purchases year-to-date at the highest level since 1967, when the dollar was still backed by gold. This puts a potential new high on full year central bank gold accumulations, although the WGC does not yet necessarily know the full list of central banks so involved, although there have been several which have pointed to an intention to add significantly to their gold reserves, but not necessarily confirmed that they have already done so.
Some recent known gold buyers have included India, Turkey and Qatar but many buyers are so far unreported, although some of these will eventually disclose increases in gold reserves in their reports on their gold holdings to the IMF, assuming they are forthcoming in this. There are some nations, though, which could be adding significant amounts of gold to their forex reserves which are known non-reporters – or rather only report increases to their holdings when they feel it is politically expedient for them to do so. These include China and Russia. The latter used to be a regular reporter of its reserve increases, but now that it is involved in its military incursions into Ukraine considers this sensitive strategic information and is an avowed non-reporter.
Today is also the first day of the two days of the U.S. Fed’s November Open Market Committee (FOMC) meeting at which the U.S. central bank will set its short term interest rate policy. This is widely expected to see a 75 basis point (3/4%) increase in the Federal Funds rate.
Markets will be looking for hints that there might be a slightly less aggressive approach to the Fed’s interest rate policy ahead despite there being apparently little let-up in inflation. What short term effect this may have on the gold price remains to be seen, but any signs of easing in the interest rate policy in forthcoming FOMC meetings will probably be positive for the yellow metal. Whether this would be sufficiently so to take the gold price back above the $1,700 mark or higher is perhaps dubious unless there are definite signs that inflation may at last be peaking, but that may yet be too soon to hope for.