Daily Market Update

China’s SAFE: “We Wont Put All The Eggs In One Basket”

Gold’s London AM fix this morning was USD 1,705.25, EUR 1,299.93, and GBP 1,088.57 per ounce.

Friday’s AM fix was USD 1,699.50, EUR 1,285.36 and GBP 1,078.30 per ounce.

Cross Currency Table – (Bloomberg)

Gold rose nearly 1% in New York on Friday and closed at $1,713.50/oz. For the week, gold was 0.01% higher.  The positive weekly close and the close above the 200 day moving average and the $1,700/oz level bodes well for this week.

Gold dropped in Asia and is marginally lower in European trading which has gold now trading at $1,704.30/oz.

Gold fell today as the US dollar rallied to its highest price in more than 7 weeks.  Investors may be waiting for the US Federal Reserve meeting tomorrow before making further commitments in the market.

Gold 1 Year – (Bloomberg)

Gold is up 9% this year, and looks to continue its 11 consecutive years of price increases, after the Fed said it would keep rates near zero until at least 2014. If the US economy is showing some signs of recovery the Fed may have to reconsider its plans for any additional monetary easing during its meeting this week. 

Money managers, institutions and hedge funds, lowered their exposure to gold reducing their bullish bets to the lowest level in five weeks during the week of March 6, as prices unwound from a late-February peak near $1,800/oz (see Other News below).

This is bullish from a contrarian perspective as it means that the speculative longs have been washed out of the market and that therefore further sharp falls are less likely and indeed that we may be close to an intermediate bottom.

China continues to diversify its massive $3.2 trillion in foreign exchange reserves.

China’s chief foreign exchange regulator, the Head of the State Administration of Foreign Exchange (SAFE) and co-Chairman of the PBOC, Yi Gang said today that China will continue to implement the principle of diversifying its investment in foreign bonds.

Gang said in March 2010 that China was considering investing more of its foreign exchange reserves in gold "appropriately" based on market conditions.

China’s declared gold reserve amounts to 1,054 tons, ranking sixth in the world. China secretly purchased some 400 tons of gold in the years prior to announcing a near doubling of their reserves in 2003.

We are likely to see another surprise announcement of vastly higher Chinese gold reserves in the coming months.

Gang said the European debt crisis has eased a little bit recently with the European Central Bank (ECB) injecting huge liquidity into the market through its Long-term Refinancing Operation.

"But many problems have yet to be resolved, as the debt crisis is still developing," he said, adding that China supports a series of measures taken by the European Union, the ECB and the International Monetary Fund to work out solutions to the crisis.

Yi stressed that risk control will be the priority for China’s foreign reserves investment, with an emphasis on safety, liquidity and potential revenues.

"We won’t put all the eggs in one basket," he said, adding that the diversified investment strategy has helped China’s foreign reserves assets withstand shocks from the U.S. subprime crisis, the bankruptcy of Lehman Brothers and the European sovereign debt crisis.

The People’s Bank of China isalmost certainly continuing to diversify a small part of its massive $3.2 trillion currency reserves into gold bullion in order to protect itself from massive dollar ($1.6 trillion dollars of US debt alone, according to the Treasury Department), euro and other currency exposure.

The People’s Bank of China will not telegraph its intentions or purchases to the market as doing so would lead to a surging gold price and to a further devaluation of its foreign exchange reserves.

China is clearly trying to position the yuan or renminbi as the alternative global reserve currency. 

The Chinese realise that they will need to surpass the Federal Reserve’s official, but unaudited, gold holding of 8,133.5 tonnes. China is the fifth largest holder of gold reserves in the world today and officially has reserves of 1,054.1 tonnes which is less than half those of even Euro debtor nations France and Italy who are believed to have 2,435.4 and 2,451.8 tonnes respectively.

China’s gold reserves remain miniscule as a percent of their overall foreign exchange reserves – less than 2%.  In marked contrast to the US, Germany and even France and Italy when gold’s share of national forex reserves is over 70%.

OTHER NEWS

(Bloomberg) — Indian Gold Demand Was ‘Above Average’ on March 9, UBS Says

Indian gold demand was “above average” on March 9, and gold holdings in exchange-traded funds have held up “exceptionally well,” UBS AG said.

“We think the case for higher gold prices this year remains in tact,” Edel Tully, an analyst at UBS, said in a report e-mailed today.

Gold Traders Trim Bets on Price Rise, CFTC Data Shows

(Bloomberg) — Gold Traders Trim Bets on Price Rise, CFTC Data Shows

Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended March 6, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 163,265 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 29,955 contracts, or 16 percent, from a week earlier.

Gold futures rose this week, gaining 0.1 percent to $1,711.50 a troy ounce at today’s close. 

Miners, producers, jewelers and other commercial users were net-short 200,208 contracts, down 45,143 contracts, or 18 percent, from the previous week.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices.

(Bloomberg) — Silver Traders Trim Bets on Price Rise, CFTC Data Shows

Hedge-fund managers and other large speculators decreased their net-long position in New York silver futures in the week ended March 6, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 23,192 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 6,811 contracts, or 23 percent, from a week earlier.

Silver futures fell this week, dropping 0.9 percent to $34.21 a troy ounce at today’s close.

Miners, producers, jewelers and other commercial users were net-short 35,796 contracts, down 8,797 contracts, or 20 percent, from the previous week.

Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors, as well as commercial companies that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices.

(AP) – Gold Prices Rise on Worries About Europe’s Economy

Gold topped $1,700 an ounce Friday as concerns lingered about Europe’s financial problems even after strong participation in Greece’s bond swap.

Gold for April delivery rose $12.80 to finish at $1,711.50 an ounce. Silver also rose 38.1 cents at $34.212 per ounce. Both metals are considered relatively stable assets during uncertain economic times.

About 84 percent of Greece’s private investors agreed to take losses on their bond holdings, erasing about $130 billion in the country’s debt. Greece is now expected to get bailout funding from its neighbors.

(Bloomberg) — Georgian Police Arrest One in Million-Lira Turkish Gold Theft

Georgian police arrested a man they accuse of involvement in the theft of one million liras ($560,000) in gold from northern Turkey.

(Bloomberg) — Holdings in Gold ETPs Rise to Record 2,408.39 Metric Tons

Gold holdings in exchange-traded products backed by the metal rose 1.4 metric tons to a record 2,408.39 tons, data tracked by Bloomberg showed.

Police arrested the man along with 400 grams (13 ounces) of gold, which had been melted down, Interior Ministry official Soso Topuridze told reporters in Tbilisi today. Police are searching for other members of the gang and it’s “too early” to consider extradition, he said.

Thieves made off with about 6 kilograms of gold after tunneling into the basement of a jewelry shop in the Turkish city of Ordu, about 350 kilometers (220 miles) west of the Georgian border, local police chief Hakan Kirmaci said in a statement carried by Turkish state news agency Anatolia March 6. The group had spent three days digging, he said.

"Say yes to life even though you know it may devour you."

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

NEWS

Reuters
Gold slips as equities reverse gains, eyes on Fed meeting‎

MarketWatch
Gold, silver futures slip in electronic trading‎

Investment Europe
State Street Global Advisors cautions on gold bubble bursting

Reuters
Greek debt swap could be short-lived reprieve

COMMENTARY

Got Gold Report
Gold Report – Short Covering in Play

The Heartland Institute
Michael Green: In Gold We Trust?

Business Insider
America Is Using Tricks To Hide A Debt Crisis Worse Than Greece

King World News
Sinclair – Greek Tragedy Part of $37 Trillion, Not $3.5 Billion

Dr. Schoon
Fekete: Wobbly Anchors or Wobbly Logic?

Mark OByrne

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