Hawaii Six O - Gary Wagner
Waiting On The Fed
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
After trading to the highest closing price this year, on September 4th gold closed at approximately $1558. For the following five trading days gold pricing would soften to the lows of approximately $1492, before moving back above $1500. Then on Saturday an attack by Iranian backed rebels devastated Saudi Arabia’s oil processing facility. This event caused gold prices to rally on the open in Australia and Hong Kong, but by the time gold closed in New York on Monday it had given up most of its gains.
The key to looking at recent price activity is that gold prices seem to be forming a base and level of support roughly at $1500 per ounce. While market participants continue to focus on the recent attack, it is the upcoming FOMC meeting which began today that will garner most of the attention, and could have a profound impact on the future direction of gold pricing.
However, although these two events seem to be the most influential in shaping gold prices, in reality it is recent action of the global central banks which has been moving to a much more dovish monetary policy by cutting interest rates and initiating quantitative easing as we saw in 2008. Not only are they making their currency cheap to borrow but also purchasing assets for increased liquidity.
There is one fact that has been for the most part reported as a side note rather than giving this event the incredible importance it deserves. Central banks globally continue to buy gold in large quantities while at the same time there flooding the market with fiat currencies.
As reported in Asia Times, “China and Russia have been stockpiling gold, helping to propel the precious metal to its highest level in more than six years, “Fox Business reported. “The People’s Bank of China has added about 100 tons of gold to its reserves since December. Russia has bought 106 tons of the precious metal this year.”
But the Chinese and Russians are not alone. According to Barron’s, “Central banks had a record first half of the year, collectively buying 374 metric tons of gold through June,” says Juan Carlos Artigas, director of investment research at the WGC. That was the highest first half of the year since central banks became net buyers in 2010. Net purchases from central banks year to date are still below those of 2018, but with the significant level of central bank purchases this year, “we will likely be above the 10-year average,” says Artigas.
Why is there a rush by the global central banks to accumulate more gold? Why have the begun to accumulate massive amounts of bullion like we saw in 2010? According to some analysts (like Peter Schiff and Brien Lundin, editor of Gold Newsletter) the massive gold purchases by central banks does not indicate where gold will head in the short-term but rather it says a lot as to where the central banks forecast the value of gold in the future.
It is obvious that these massive gold bullion purchases by global central banks will have a profound impact later on down the road, but right now all eyes are glued to the Federal Reserve decision due out tomorrow immediately following the conclusion of this month’s FOMC meeting.
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Wishing you as always, good trading,