Central Banks Favour Gold As Diversification – LBMA

Today’s AM fix was USD 1,332.25, EUR 983.14 and GBP 819.85 per ounce.
Yesterday’s AM fix was USD 1,335.75, EUR 989.59 and GBP 827.30 per ounce

Gold fell $8.20 or 0.93% yesterday, closing at $1,327.80/oz. Silver dropped $0.05 or 0.23%, closing at $21.72. Platinum fell $12.04 or 0.9% to $1,401.06/oz, while palladium slipped $6.25 or 0.9% to $721.75/oz.

The LBMA conference heard from participants that emerging market central banks, with large foreign exchange reserves, are likely to continue diversifying into gold and remain net buyers of gold in the coming years.

Gold edged upward as the first U.S. government shutdown in 17 years began, increasing safe haven demand to protect wealth on concerns that a prolonged impasse will impact the U.S. economic recovery.

The yellow metal gained almost 8% for the third quarter, thanks to a sharp rebound rally following a record 23% drop in Q1 where it posted a $225 two-day drop in mid April. It was also gold’s first quarterly rise since the third quarter of 2012.


Countries That Have Purchased Gold Since Lehman Collapse, LBMA Conference 2013 

Central Banks have long been buyers of gold bullion and there was a marked increase in central bank bullion activity post the Lehman collapse.  Central banks bought 534.6 tons of gold in 2012, the most since 1964, and continue to accumulate.

At the London Bullion Market Association conference in Italy, an official from Banca d’Italia said that keeping gold reserves is a key support to central banks’ independence, squashing rumors that it might sell some of its holdings.

Banca d’Italia  has the fourth largest gold reserves among the world’s central banks and the market heard whispers that it may sell off reserves to help its economy.

Regulations covering central bank independence inhibit them from using bullion reserves this way, but concerns increased after the EU Commision assessed Cypriot financing needs and showed Cyprus may be under pressure to sell gold to raise almost 400 million euros to help finance its bailout.

During Banca d’Italia’s keynote address Salvatore Rossi the director general told delegates how gold plays a key role in the central bank reserves:

"Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution," he said.

"These features, coupled with historic … and psychological reasons, stand in favour of gold’s importance as a component of central bank reserves," he said. "Gold underpins the independence of central banks in their ability to (act) as the ultimate bearer of domestic financial stability."


Bundesbank’s View of Gold – LBMA Conference 

Other European central banks including the Bank of France and the Bundesbank said at the conference that they will not sell their gold reserves, as they can provide a level of confidence, an element of diversification and can absorb some volatility from the central bank’s balance sheet.

In other news from the conference, the London Bullion Market Association could charge its member banks more or even disband its Gold Forward Offered Rates (GOFO) after a string of new financial regulations, the chairman of the industry body told Reuters yesterday.  Additionally, the U.S. Fed’s next policy meeting is Oct. 29-30th.

NEWS
Gold Advances With Silver as Start of U.S. Shutdown Spurs Demand – Bloomberg

Banca d’Italia Says Gold Reserves Key to Cenbank Independence – Reuters

Gold ticks up as U.S. government shutdown beginsReuters

COMMENTARY
Shut Happens – Zero Hedge

Congress could kill stock rally if government shutdown drags on – CNBC

For breaking
news and commentary on financial markets and gold, follow us on Twitter.

Mark OByrne

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