IMF: Gold Is Scarce “Safe Asset” And “Growing Shortage of Safe Assets”

 

Gold’s London AM fix this morning was USD 1,655.50, EUR 1,261.33, and GBP 1,039.04 per ounce. Yesterday’s AM fix was USD 1,654.00, EUR 1,261.63 and GBP 1,040.25 per ounce.

Silver is trading at $31.56/oz, €24.01/oz and £19.78/oz. Platinum is trading at $1,583.75/oz, palladium at $637.50/oz and rhodium at $1,350/oz. 


Cross Currency Table – (Bloomberg)

Gold fell $0.90 or 0.05% in New York yesterday and closed at $1,658.10/oz. Gold has been trading sideways in Asian trading and remains in a tight range in Europe this morning near $1,656.07/oz. 

Gold remains supported this morning as the ECB signalled that it would intervene in the debt markets on worries about Spain and the risk of contagion in the Eurozone.  ECB board member Benoit Coeure said “the European Central Bank still has its bond-buying programme as an option”.  

Investors are also still concerned about other peripheral Eurozone economies like Italy and how they might affect the core Eurozone nations.  Italy saw its 1 year borrowing costs rise for the first time since November during its sale of short term bills yesterday, ahead of a 3 year bond auction later today.

The number two official at the US Fed, Yellen, said overnight that due to high unemployment facing the economy, the Fed has left the door open to further Fed action including QE.

Further QE and the continuation of ultra loose monetary policies will be positive for gold.

IMF: Gold Is Scarce “Safe Asset” And “Rising Demand for Safe Assets” 
Further confirmation of gold’s continuing but gradual renaissance as a safe haven asset was given by the IMF yesterday who warned that a “growing shortage of safe assets” poses a threat to “global financial stability.” 

The IMF identified $74.4 trillion of potentially safe assets today, including gold, investment grade government and corporate debt, and covered bonds.


Dow Jones Industrial Average Index in Gold USD 

Sovereign debt crises are reducing the number of governments that investors trust to issue "risk-free" bonds just as new financial regulations are increasing demand for safe securities from banks.

Importantly, the IMF’s latest Global Financial Stability Report’s introduction finds that 

"In the future there will be rising demand for safe assets, but fewer of them will be available, increasing the price for safety in global markets.” 

“Both the lack of political will to reshape fiscal policies at times of rising concern over debt sustainability and an overly rapid reduction of fiscal deficits limit governments’ capacity to produce assets with low credit risk.”

The IMF has warned regarding illiquidity in “safe haven” markets. Gold remains one of the most liquid markets in the world and the illiquidity in bond markets would see increased safe haven demand for gold. 

The IMF is warning regarding deteriorating public finances. As many governments see themselves being downgraded – safe haven bonds may become less safe.

This bodes well for gold in the coming years and should see gold again be seen as a leading if not the ultimate safe haven asset.

Gold To Reach $2,000/oz Within Year On QE, Inflation and Spain –  GFMS 
Gold may climb to a record above $2,000 an ounce within the year as concerns about sovereign debts and inflation lead to safe haven and inflation hedging demand from investors, Thomson Reuters GFMS said.

While the near term may be “challenging” because of concern about demand in the top physical markets, especially India, the possibility of further quantitative easing will likely support gold.

The price floor may be at or below $1,650 an ounce, according to the report.


Gold 2 Year Chart- (Bloomberg)

“While short-term downside risks remain in place for the gold price, the economic and financial background continues to point to higher prices,” GFMS said. “It is too soon to dismiss the possibility of further quantitative easing in either the United States or Europe, and the Chinese government may yet ease its monetary policy.”

Global gold demand rose 0.6 percent last year as a jump in central-bank buying offset a decline in fabrication, GFMS said. Central banks boosted net purchases almost six fold to 455 tons last year, and may buy about 100 tons each quarter in 2012 as emerging countries maintain a similar rate of purchases and sales from Europe remain “tiny,” according to the report. 

Total investment fell 10 percent to 1,605 tons last year, with bar demand climbing 37 percent to a record 1,209 tons, GFMS said.

China’s jewelry fabrication may rise to a new high in 2012 after jumping 15 percent to a record 496 tons, according to GFMS. Growth in China will be driven by the country’s economic expansion, while exports will remain “moribund” due to a weak global economy.

It is important to note that GFMS have been quite bearish on gold in the long term in recent years. 

Any positive outlook has usually been short term in nature and tempered by warning that the price would “peak” in a year or two or the near term. There is the risk that they are again conservative and overly cautious.

South African Production Plummets Again 
On the supply side, South African gold production continues to plummet. South African gold production fell 11.5% in February from a year earlier, Juan-Pierre Terblanche, a spokesman for Statistics South Africa told Bloomberg today.

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

NEWS
Gold ‘to Hit $2000’ on Spain Fears – The Telegraph

Gold Could Climb to $2,000 Within A Year – The Financial Times

Gold treads water; euro zone caution remains‎ – Reuters

Physical gold demand strong: GFMS – MarketWatch

IMF: Growing shortage of safe assets such as Gold – The Financial Times

Gold could peak in 2013 after 12-year bull run: GFMS – Reuters

COMMENTARY
China Buying Gold? – MarketWatch

Europe’s banks beached as ECB stimulus runs dry – The Telegraph

Gold Rules – In Vietnam They Will Pay You To Store Your Gold – Zero Hedge

How Serious are China and India About Their Gold? – Fox Business

Buying The Dips In Gold Has Been The Right Move For A Decade – Forbes

 

Mark O'Byrne

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