Central Banks Continue To Diversify Away From Dollar, Buying Gold – Capital Economics

Despite its recent lack of safe-haven appeal among investors, central banks around the world continue to see gold’s appeal, say analysts at Capital Economics. “Global central banks continued to buy gold for diversification purposes in May,” says Simona Gambarini, commodities economist for the UK-based firm, in a research note Monday morning. “Buying was mostly concentrated among emerging markets’ central banks, with Russia once again particularly active.” She expects central banks to continue to increase their exposure to gold in order to diversify away from the U.S. dollar. Gambarini notes that 7 tonnes of gold were added to global central banks’ reserves in May, compared to just over 4 tonnes added the month prior. “In particular, the Central Bank of Russia increased its reserves by a further 4.3 tonnes, following the addition of 30 tonnes in March and 8.3 tonnes in April, as the Bank seeks to diversify its portfolio away from the U.S. dollar,” she says. She adds that despite concerns that buying in 2015 will be lower than last year, there are “good reasons to expect the pace of gold purchases to pick up again.”

By Sarah Benali of Kitco News, sbenali@kitco.com

UBS: Gold's Response To Greek Deal Is 'Muted'

Monday July 13, 2015 11:12

Gold slipped $6 an ounce in a knee-jerk move after a European summit reached a deal on Greek debt, but overall the response has been muted and price action may remain subdued, UBS says. “It's understandable for gold prices to come off following the removal of key euro-zone risks, yet given the relative lack of significant safe-haven flows to begin with, the downside should be contained,” UBS says. “Moreover, while shorts might be emboldened now that tail risks have been diminished, the propensity to add aggressively to positions here is likely going to be constrained by the fact that gold short positioning is at all-time highs. Ultimately, as the market digests the latest developments, we would expect the net impact on gold prices to be subdued overall, especially given current summer trading conditions.” As of 8:41 a.m. EDT, Comex August gold was down $3.10 to $1,154.80 an ounce.

By Allen Sykora of Kitco News; asykora@kitco.com

Mitsubishi: Gold To Focus On Iran Talks, Yellen Testimony

Monday July 12, 2015 8:51

Negotiations over a nuclear deal with Iran and Federal Reserve Chair Janet Yellen’s testimony are two events that could move gold in either direction this week, says Mitsubishi. The firm notes that gold prices have not benefitted much from safe-haven buying in recent weeks amid concerns about Greece, as many investors anticipated an eventual last-minute deal of the sort reached Monday. Prices also failed to respond positively to the Chinese equity-market crash. The firm says a downside factor for gold has been liquidations as investors sought to raise cash to meet margin calls on equity losses. “Precious metals could be pulled in either direction this week,” Mitsubishi says. “A potential nuclear deal with Iran could see more oil released onto the world market – an essentially deflationary, bearish scenario for gold and its sister metals. On the other hand, Fed Chair Yellen’s congressional testimonies may emphasise -- as last week’s June minutes did -- the need for the FOMC (Federal Open Market Committee) to wait until there is more evidence of strengthening U.S. economic growth before rate rises are begun; this lower-for-longer stance should benefit precious metals.” 

By Allen Sykora of Kitco News; asykora@kitco.com

Barclays: Safe-Haven Bid Helps Gold Fare Better Than Most Commodities

Monday July 12, 2015 8:51

Gold has been under pressure in recent weeks but has held up better than other metals and commodities, with a safe-haven bid limiting gold’s downside, Barclays says. “On the one hand, gold has failed to shine as uncertainty over Greece has spiraled, and China’s stock market has endured a sharp correction,” the bank says. “But similar to extreme risk scenarios in the past, gold has held its value relatively well, allowing investors to raise cash to meet margin calls elsewhere and tap into the liquidity that gold provides. Gold has tested prices below $1,150/oz, last reached in March, whereas silver has tested November lows, palladium has tested June 2013 lows and platinum has tested February 2009 lows.” Analysts add that the market is focused on the timing and likelihood of a U.S. rate hike. “Our economists maintain their September call, but have lowered their conviction.”

By Allen Sykora of Kitco News; asykora@kitco.com

BBH: Greece Capitulates; Attention Turns to ECB

Monday July 12, 2015 8:51

Focus in the Greek debt crisis now turns to the European Central Bank, says Brown Brothers Harriman. Analysts point out that the Greek government “capitulated” on nearly all of the European demands, seemingly averting an unceremonious exit from the monetary union. Prime Minister Alexis Tsipras ultimately failed to deliver on his promise of no austerity and staying in monetary union. The Greek parliament must now pass six reform bills that the recent referendum had appeared to reject. The ECB meets later Monday to make some decision on Emergency Liquidity Assistance. “It is thought that as little as a EUR2 bln increase in ELA could reopen the banks  Tuesday/Wednesday, though capital controls would remain in place,” BBH says. “While it might be tempting to wait for the Greek parliament to vote, it is not clear that Greek banking system can survive until then (Wednesday). Also, note that Greece has a rather small samurai bond maturity tomorrow, as well as Greek civil servant and pension fund payments to make on Wednesday.” BBH says the acceptance of the creditors’ demands is likely to precipitate a domestic political crisis that will lead to a change in Greece’s government. “A technocratic government, led perhaps the central-bank governor, seems to be the most promising possibility, but new elections cannot be ruled out later this year,” BBH says.

By Allen Sykora of Kitco News; asykora@kitco.com