Japan Gold Buying on TOCOM Again Supports

Gold’s London AM fix this morning was USD 1,669.00, GBP 1,072.69, and EUR 1,282.17 per ounce.

Yesterday’s AM fix was USD 1,675.00, GBP 1,076.55, and EUR 1,294.94 per ounce.


Cross Currency Table – Bloomberg

Gold started out lower in Asia this morning as the euro faltered on news that European finance ministers rejected an offer by Greece’s private creditors to help restructure its debts, but gains on Tokyo futures exchanges and an increase of demand in India cushioned the fall.

Investors are waiting on the outcome of a 2 day Federal Reserve meeting which ends on Wednesday.  Here they are following any signs that interest rates will remain low, as that could put pressure on the U.S. dollar.

The Tokyo Commodity Exchange, December, gold contracts climbed as high as 4,167 yen/gram, its biggest gain since mid-December. The gains initially propelled cash gold even though trading was slow during the Lunar New Year break.

Japan has been notably absent in the gold market in recent years. This may be changing as concerns about the Japanese economy and continuing debasement of the yen may be leading to Japanese diversification into gold. 

The scale of domestic savings in Japan remains enormous.

This would be a new and potentially extremely important source of demand in the gold market which could help contribute to much higher gold prices. 

The EU will freeze assets in Europe of the Iranian Central Bank as well as of 8 other entities and ban trade in gold, precious metals, diamonds and petrochemical products from Iran. The Iranian Foreign Ministry in a statement called the decision “aggressive” and said it will have “negative consequences” in Europe, including higher oil prices. The elevation of tension with Iran will continue to give gold a safe haven status for investors.

The World Gold Council published its yearly report on gold’s performance for 2011.  

They report, “During 2011, the US dollar price of gold rose by 9% ending the year at US$1,531/oz based on the London PM fix, marking the 11th consecutive year of price increases.1 During the first part of January 2012, the price of gold continued its upward trend above the US$1,600/oz level.”

Central bank gold purchases are expected to have hit another record in 2011, while demand for gold-backed exchange-traded products fell to less than half of that seen in 2010 last year, according to a report from the World Gold Council on Monday. 

The WGC, an industry-backed group, said in November it expected central banks to add some 450 tonnes of gold to their existing reserves in 2011, driven mainly by purchases from emerging economies that are seeking alternative investments to the U.S. dollar. 


Source: World Gold Council – Reuters graphic

"Central bank net-buying is poised to have a record year, and many of these purchases happened during Q3 and Q4. Additionally, investment activity remained healthy as market participants continued to access the market whether through bars and coins or other vehicles," the council said in a report. 

"In fact, gold-backed ETFs, collectively, added 75 tonnes of gold between September and December alone (out of 153 tonnes during the full year)," it said. 

Demand for gold-backed ETFs in 2010, when the reach of the euro zone debt crisis first became apparent with the bailouts of Greece and Ireland, reached 367.7 tonnes, according to WGC data. 

Rising equity market volatility and a desire among safety-conscious investors for cash in the run-up to the end of the year knocked the gold price back from September’s record highs to December’s closing levels around $1,564.00. Since then, gold has risen by nearly 8 percent to trade around $1,670 an ounce in London at 1455 GMT. 

"Our analysis shows that there have only been six previous instances in which the price of gold has fallen by more than 10 percent over the past decade and once the price has stabilised to a certain (typically new) level, it resumed its upward trajectory," the World Gold Council said, but did not include any price forecasts for 2012.

"Moreover, the price pullback experienced this last September was less pronounced than the pullback gold experienced during 2008. Even then, gold rose to finish the year with positive returns. Beyond the day-today market movements, the underlying gold price trajectory is based on its long-term supply and demand dynamics which remain robust," the council said.

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

NEWS
(Reuters)
Gold slips below 6-week high, focus on Fed meeting

(Reuters)
Gold inches up despite euro, eyes on Greece

(Bloomberg)
EU Hits Iran With Oil Ban, Asset Freeze

COMMENTARY
(Global Macro Monitory)
Is Gold About to Get a Monetary Blast (Off)?

(MoneyWeek)
Look what’s happening to silver

(KingWorldNews)
Eveillard – We are Headed for Enormous Inflation & Higher Gold

 

 

Mark O'Byrne

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