The Daily Nugget – Central banks buy gold

The gold price climbed above $1,772 yesterday but promptly consolidated around $1,762, as the dollar gained strength and the eurozone continued to collapse. Increased demand to buy gold bullion eased off after a gentle push forward.

The dollar’s climb was thanks to CB Consumer Confidence data coming in at a 7-month high, much higher than expected.

Eurozone woes continued as protests against Rajoy’s cuts became more violent than those seen previously. The Bank of Spain has also released a warning stating Q4 GDP will fall by a significant rate compared to that in Q3 2012. This morning, the overnight protests in Spain have sent jitters around the markets as investors begin to realise that a country with 25% unemployment is not one which can be rescued thanks to a quick bailout.

Analysts expect to see further disruption over in Greece where an austerity package, proposing the equivalent of 5% of GDP in cuts, is being finalised. A general strike is happening today, prompting mass gatherings in Athens. Meanwhile, Merkel and Lagarde are also due to meet to decide what to do about the ‘financing gap’ only just discovered in the EU-IMF sponsored programme.

The uncertainty and increasing instability in the Eurozone led to the euro falling to a two-week low against the US dollar.

Bang on trend for this year, it was reported that some central banks continued to add to their gold holdings over the summer. IMF data shows South Korea added 16 tonnes in July, Kazakhstan increased holdings by 1.4 tonnes whilst Paraguay added a few thousand ounces to take holdings to just above 8 tonnes. For this year in total Turkey remain the top gold purchaser; having increased reserves by 100.2 tonnes.

Regulation looks like another topic which will be coming up for debate once again, because it’s not as if countries have got more pressing things to be dealing with at the moment. The IMF appears to be mulling over the idea of a global banking ring-fence around retail and investment banking operations. This is as they believe new regulations are failing to end the ‘too big to fail’ issue.

Gold prices ease, whilst silver prices post gains

Now is proving to be a good time to buy gold as it sits in this consolidation period waiting for the next round of stimulus or disruption in order to drive it past $1,800. Analysts remain bullish on gold as the poor economic backdrop is not something which will be fixed in the near future.

The silver price remains on track for the best three months since Q4 2010, with a rise of 23.5%. Silver potentially offers greater returns to investors and it can be argued that it is in a better position to reach new highs due to its attractiveness to speculators buying silver.

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About the Author

Jan SkoylesJan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University in 2011 Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of media including BBC, Reuters, Wall Street Journal, Mail on Sunday, Forbes and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.View all posts by Jan Skoyles