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Central Banks Favour Gold and AAA Rated Government Debt – Reserve Currencies of EUR and USD Questioned

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From Gold Core

Central Banks Favour Gold and AAA Rated Government Debt – Peripheral Eurozone Debt Cut and Reserve Currencies of EUR and USD Questioned

Stocks are higher in Europe after gains in Asia despite losses on Wall Street yesterday. Gold and silver are showing tentative gains after 1% declines yesterday. Gold is particularly strong in yen terms as the yen has weakened against all 16 of its major peers (see cross currency tables). China’s yuan climbed to a 17-year high versus the dollar but is lower against the precious metals .

Cross Currency Rates at 1200 GMT

Treasuries have fallen  as the U.S. prepares to sell $21 billion of 10-year notes today, the second of three auctions this week. Ten- year yields rose three basis points and the yield on the five-year Treasury note rose three basis points.

Commodities have advanced with cocoa and coffee making gains and oil making tentative gains.

 

Gold Higher as IMF Warns Regarding U.S. Massive Budget Deficit of 10.8% of GDP

With America set to have the largest budget deficit of any of the developed economies, a whopping budget deficit of 10.8pc of GDP this year alone, gold and silver’s medium term prospects remain positive.

US Dollar Index – 31 Year (Monthly)

The IMF has warned that the U.S. lacks credibility regarding its debt and must implement stringent austerity measures.

This is one of the primary factors which strongly suggests that, contrary to the consensus, a double dip recession looks increasingly likely in the U.S. This would be negative for the dollar and US treasuries and lead to higher gold and silver prices due to safe haven buying.

Central banks are questioning the dollar and the euro as reserve currencies due to the massive liabilities and debt levels confronting the US and the Eurozone (see News below). This is set to lead to central banks continuing to be net buyers of gold for the foreseeable future.

NEWS

(Reuters) - Central Banks turn Net Gold Buyers, Cut Euro Zone Debt: Survey

Central banks turned net buyers of gold last year and cut exposure to debt issued by euro zone members Greece, Ireland and Portugal, an annual survey of the world's reserve managers showed.

A quarter of managers polled said they had upped their exposure to 'non-traditional' reserve currencies such as the Australian and Canadian dollars in the last two years and a majority said debt issued by the euro zone rescue fund, the EFSF, had the makings of a sound reserve asset.

"Traditionally, government bonds have been termed 'risk-free' assets but the euro zone situation has made some of us change our understanding of that," said one of the 39 reserve managers that responded to the poll conducted by Central Banking Publications over the winter of 2010-2011.

Concerns over sovereign default fueled demand for gold, turning central banks into net buyers in 2010 after 20 continuous years of selling the metal.

"Gold's quality as a store of value and fears over reserve currencies are the main reasons that central banks turned net buyers of bullion in 2010," wrote survey author Nick Carver.

The survey's respondents, who manage central bank reserves worth $3.5 trillion in total or 35 percent of total world reserves, identified gold as a "safe" reserve asset at a time when rising sovereign debt levels and super-loose monetary policy from the world's major central banks sapped confidence in more traditional reserve currencies.

"Both the euro zone and the U.S. are confronted by large deficits with simultaneously modest growth, which has influenced the value of their currencies and raised questions about debt sustainability," said one respondent.

Gold, investment grade corporate bonds and AAA-rated bonds were the three assets that reserve managers saw as more attractive than the year before.

Over 70 percent of the managers surveyed said central banks were likely to remain net buyers of gold given the level of uncertainty about sovereign debt.

CREDIBLE ALTERNATIVES

The survey also found 69 percent of respondents had not changed their reserve management strategies as a result of the Federal Reserve's expansion of its bond purchase program.

Instead, the second round of quantitative easing had prompted a tactical reaction with some central banks shortening the duration of the U.S. debt they held.

U.S. Treasuries remained the safest liquid asset "in the absence of a credible alternative", said a reserve manager from the Middle East.

There was, however, growing interest among reserve managers in non-traditional reserve currencies.

Over a 20 percent of respondents said they held more than 5 percent of their reserves in currencies such as the Australian dollar, the Swedish crown and the Singapore dollar.

(Wall Street Journal) -- Indian Investors Switch to Silver From Gold

NEW DELHI -- Higher returns are tempting many small Indian investors to buy silver and sell some of their gold jewelry as the price of the white metal has more than doubled over the past year, traders said.

Spot silver prices rose to an all-time high of 60,125 rupees ($1364) a kilogram Friday in India's main bullion hub, Mumbai, from 28,535 rupees on April 12 last year, driven by firm global cues as concerns over unrest in the Middle East and North Africa have improved its safe-haven appeal. Gold prices too rose, but at a much slower pace of about 21% to 21,500 rupees per 10 grams.
"Ordinary investors are buying silver as if there is no tomorrow," Suresh Hundia, president emeritus of the Bombay Bullion Association, told Dow Jones Newswires. "Many people are selling their gold and buying silver because gold has not given them as good a return."

According to him, Mumbai alone is recording daily silver purchases of 400-500 kilograms.

Typically, most Indians prefer buying gold rather than silver for investment. The change in trend may hit gold demand to some extent this year in the world's largest consumer where 700-800 tons of the yellow metal is bought annually.
Mr. Hundia said the higher demand hasn't driven up silver imports.

"Most of the supplies are coming from recycled silver from wholesalers, who want to make a quick buck," he said, adding that monthly imports of silver were more or less static at around 30-50 tons.

The investment demand for the white metal is so high that there is a shortage of silver in the key western Indian bullion hub of Ahmedabad, said Girish Choksi, a bullion dealer based in the city.

At the same time, demand for gold is steady to lower.

Demand for gold in southern states such as Tamil Nadu and Kerala has crashed in the past 10-15 days due to a combination of high prices as well as ongoing state elections, which have made it difficult for people to carry cash for purchases because of law and order problems, said Krishna Kumar Nathani, managing director of Indiabullion.com.

"Elections have overshadowed gold demand for marriages... That demand will now come around June," he said.

Mr. Nathani said he expected a 10%-15% price correction in silver in May-June, but investors shouldn't panic because returns will still outshine that from gold over a period of a year or so.

"It has already beaten gold in the past one year and it will continue to do so because the scope for price growth is still more in silver."

(Bloomberg) -- Fresnillo Silver Output Falls on Lower Grades, Gold Advances (1)

Fresnillo Plc, the world’s largest primary silver producer, said first-quarter output of the metal fell 4.3 percent as ore grades declined.

Fresnillo produced 9.08 million ounces of silver, compared with 9.49 million ounces a year earlier, the Mexico City-based company said in a statement today. That excludes 1.01 million ounces from the Silverstream agreement, an accord between Fresnillo and Mexico’s Industrias Penoles SAB.

The company reported “slightly” lower ore grades at its Fresnillo mine in Mexico. “We are currently taking measures to increase the volume of ore processed to compensate the lower ore grade,” it said.

Gold production rose 13 percent to a record 96,407 ounces in the quarter following a capacity expansion and improved recovery at the Soledad-Dipolos project, Fresnillo said.

(Bloomberg) -- Fresnillo’s Gold Output Climbs to Record During First Quarter

Fresnillo Plc said gold production rose 13.3 percent to a record 96,407 ounces during the three months to March 31.

(Bloomberg) -- Silver Options Bears Boost Bets on Metal’s Drop for Second Day

Trading of bearish options on a silver exchange-traded fund jumped to almost triple the four- week average, boosted by a single trade for a second day, as futures on the metal snapped a seven-day winning streak.

More than a third of all volume for puts to sell the iShares Silver Trust ETF was concentrated in a single trade of 100,000 contracts in a strategy known as a butterfly, according to OptionsHawk.com, a Boston-based provider of options-market analytics. The trade profits most if the fund falls 8 percent to $36 before May options expire.

The fund fell 0.2 percent to $39.12 at 1:33 p.m. in New York and is down from yesterday’s intraday record of $40.33.
Silver futures for May delivery fell 59.2 cents, or 1.5 percent, to $40.02 an ounce on the Comex.

(Washington Post) -- Rio Tinto to Provide Gold, Silver, Copper for Medals At 2012 London Olympics

LONDON — The gold, silver and copper that will be used in the 4,700 medals at the 2012 London Olympics will be provided by international mining company Rio Tinto.

By signing up as a tier-three backer of the games, Rio Tinto’s sponsorship will be worth about $16 million.

Rio Tinto has supplied the metals for Olympic gold, silver and bronze medals once before — at the 2002 Salt Lake City Games.
The metals for the London medals will come from the Kennecott Utah Copper mine in Salt Lake City and the Oyu Tolgoi site in Mongolia.

Rio Tinto chief executive Tom Albanese says the company is “excited to have the special job once again of digging the ore that will become treasured medals for the world’s elite athletes.”

(Bloomberg) -- Gold Is Set to Rise as Industrial Metals Decline, UBS Says (1)

Gold is poised to rise over the next few months as industrial metals drop on concern global growth may slow, UBS AG said.
Gold may climb 5 percent in the second quarter as industrial metals fall by the same amount, UBS analysts including London-based Julien Garran said in a report today. The bank lowered estimates for copper, aluminum and zinc prices in 2011 and raised its silver forecast by 21 percent.

UBS acted a day after the International Monetary Fund cut its projection for growth this year in the U.S., the world’s second-biggest copper consumer, citing higher oil prices and the pace of job gains. The IMF also lowered its projection for Japan’s expansion in 2011 and said weaker global growth will reduce demand for commodities and encourage destocking.

“We see a difficult three months looming for metals and mining,” the analysts said. “A combination of a global slowdown, Middle East tensions, Fed policy normalization and post-Japan quake disruption all threaten a tactical pullback from the current benign market.”

Precious metals are its top pick among commodities for the second quarter, UBS said, followed by thermal coal and other bulk raw materials, with industrial metals least preferred.

Copper, which touched $10,190 a metric ton on Feb. 15, has likely peaked for the year because of tighter monetary policy in China and in the West, the report shows.

Chinese Demand

Demand remains “lackluster” in China, the world’s biggest industrial-metals user, while further interest-rate increases to curb inflation may sap raw-materials demand, UBS said. The country’s central bank has raised rates four times since early October. China’s consumer price inflation reached 4.9 percent in February, above the government’s 4 percent target.

Commodities also may suffer as the Federal Reserve is likely to announce plans to end its second round of Treasury purchases, known as QE2, around the middle of the year, UBS said. The Fed last month stuck to plans to purchase $600 billion of bonds.

The IMF lowered its U.S. growth forecast to 2.8 percent from January’s 3 percent and reduced its forecast for Japan to 1.4 percent from 1.6 percent. Crude oil exceeded $113 a barrel in New York trading yesterday for a second session.

In Japan, power shortages in the aftermath of the March 11 earthquake will also constrain demand for industrial commodities, UBS said. In addition, it cited a “major disruption” to auto production.

Aluminum, Zinc

Copper will average $4.12 a pound this year, 2 percent below a prior estimate of $4.20, UBS said. The bank lowered its estimate for aluminum to $1.08 a pound from $1.12 and said zinc will average $1.09 a pound, down from $1.15. UBS expects silver to average $40 an ounce, compared with $33 previously.

Global thermal-coal demand may rise 2.3 percent this year to 736 million tons, even as about 5 million tons of demand might be lost because of the Japanese quake, UBS said. Rains have cut production in Indonesia, Australia and Colombia, while demand is climbing in China and India at respective annual rates of 17 percent and 10 percent, the report showed.

 “As the world economy enters a soft patch and as the fiscal spotlight stretches to include the U.S., this will be a catalyst for higher gold prices,” UBS said. “Against this backdrop, gold should outperform other commodities.”

(Bloomberg) -- UBS Raises 2011 Silver Price Target by 21% to $40 An Ounce

UBS AG said it expects silver to average $40 an ounce in 2011, up 21 percent from a previous estimate of $33 an ounce.

 

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Wed, 04/13/2011 - 08:13 | 1164602 topcallingtroll
topcallingtroll's picture

I CANNOT BELIEVE THIS!

The two day bear market is already over.

Time to buy back in and protect my lousy 3 percent market timing gains

Wed, 04/13/2011 - 08:16 | 1164611 Cdad
Cdad's picture

Ummmm....yeah, I'd be careful there, chief, with the "all clear" on the commodities today.  Yesterday's dislocation was massive.  I doubt everyone who wanted out is out yet.

I'm with you on wanting to haul them back into inventory...but the last two days in this group were pretty historic.  Just sayin'.

Wed, 04/13/2011 - 08:15 | 1164612 cossack55
cossack55's picture

Of course. GOD will be addressing the world this PM.  All is good. Worship at the alter of the Teleprompter-in-Chief.

Wed, 04/13/2011 - 08:38 | 1164651 Twindrives
Twindrives's picture

Intense vacation and golf schedules are wearing on Barry.  He looks haggard.  Michelle needs to massage some Shinola into his scalp to hide that gray.  

Wed, 04/13/2011 - 08:45 | 1164663 augie
augie's picture

I dare say its time to break out the soul glow.

Wed, 04/13/2011 - 08:32 | 1164641 Ray1968
Ray1968's picture

I'm holding my puts until Friday's expiration. Probably just stupidity on my part.

Wed, 04/13/2011 - 08:33 | 1164646 topcallingtroll
topcallingtroll's picture

Ok i am sticking with oog cdad and ray on this. I will fuck up if i trade too much.

Wed, 04/13/2011 - 08:18 | 1164613 trav7777
trav7777's picture

if you were a CB, what's holding your notes up?  The dollar?  lol.  If shit gets serious, you have to really consider having something, anything, with which to back yourself.

The notion of selling into the markets is on pause indefinitely.

Wed, 04/13/2011 - 08:43 | 1164654 Infinite QE
Infinite QE's picture

Indeed. When CB's have to settle with each other via the BIS, they do it in gold. Not paper as these rascals know the game and the value is not retained in paper.

Wed, 04/13/2011 - 08:51 | 1164674 Infinite QE
Infinite QE's picture

Indeed. When CB's have to settle with each other via the BIS, they do it in gold. Not paper as these rascals know the game and the value is not retained in paper.

Wed, 04/13/2011 - 09:23 | 1164781 Scarlo
Scarlo's picture

Paper is for trading, not hoarding in bank vaults. Freegold...

Wed, 04/13/2011 - 08:24 | 1164635 writingsonthewall
writingsonthewall's picture

"Traditionally, government bonds have been termed 'risk-free' assets but the euro zone situation has made some of us change our understanding of that,"

 

Who was this idiot? I mean seriously what a total tit.

before 1998 there was an unwritten rule that "no nuclear nation will ever default" - and then the Russians did.

Do these fools not learn to make such absurd rules? - clearly not it seems.....

Wed, 04/13/2011 - 12:45 | 1165617 Bubbles the cat (not verified)
Bubbles the cat's picture

"Who was this idiot?....."

Could be my fund manager.

Wed, 04/13/2011 - 08:33 | 1164647 Terminus C
Terminus C's picture

Is it me, or is there not a major contradiction here?

Gold, investment grade corporate bonds and AAA-rated bonds were the three assets that reserve managers saw as more attractive than the year before.

Over 70 percent of the managers surveyed said central banks were likely to remain net buyers of gold given the level of uncertainty about sovereign debt.

Wed, 04/13/2011 - 10:32 | 1165029 Hugh_Jorgan
Hugh_Jorgan's picture

I was asking the same thing as I read the headline for this piece. What the hell is out there that has a AAA rating, that is not a US or European T-bill?

I know crap about the bond market, I guess it it time to go find out...

Wed, 04/13/2011 - 08:41 | 1164653 White.Star.Line
White.Star.Line's picture

There are still a few "upper deck" passenger cabins available for purchase, but as always the White Star Line only accepts gold and silver for these tickets. We do have a few "lower berth" dormitory-style rooms available for fiat purchases. Do note, these tickets are not insurable.

Wed, 04/13/2011 - 08:47 | 1164669 Sean7k
Sean7k's picture

The cumulative reserves of the world's central banks is 3.5 trillion?  Over a quadrillion in deriviatives, sovereign debt of astronomical amounts and that is the total reserve? 

This system is so far gone- we are living in fantasy economics now. The school of prop, burn,churn and turn. Without the current safety net of food stamps and welfare, we are a carbon copy of the Weimar republic in 1921.

People playing the market and gaming currencies for any real gains as a tiny percentage profit from the speculation. The rest are at various levels of starvation and wealth losses. More and more tax schemes and more and more citizens finding ways to diminish their tax payments.

The only difference is now, it's global. The banksters came out pretty good that time too.

Wed, 04/13/2011 - 08:50 | 1164676 Bicycle Repairman
Bicycle Repairman's picture

So CB's are buying gold, but Goldman and the gold trolls say I should sell my gold and silver?  F--- that.

Wed, 04/13/2011 - 08:59 | 1164703 celticgold
celticgold's picture

again

Wed, 04/13/2011 - 09:02 | 1164707 SamuelMaverick
SamuelMaverick's picture

Fellow ZHers, I decided to do some market research...  I put some 100 tr. oz. Englehard silver bars up for sale at spot price no premium on craigslist. If we were in a bubble or mania phase I figured I would get a shitload of calls.  So far all I have had was one response from an idiot who wanted to trade an ipod, an xbox and $500 in exchange for a $4000 bar of silver. No other calls, no inquiries, all I have heard is crickets chirping.  Bubble my ass.   BTFD.    Yours, Maverick

Wed, 04/13/2011 - 12:36 | 1165559 knowless
knowless's picture

For real, it's like if you post an ad for a part time baker(or similiar) that pays a reasonable wage, when I did this around 2009 I got about 400-700 people(probably more, after a while I stopped checking).. not sure what it would look like today.

Wed, 04/13/2011 - 14:58 | 1166296 pirea
pirea's picture

double

Wed, 04/13/2011 - 14:57 | 1166298 pirea
pirea's picture

Serious people do not look to buy PM on craiglist.

Your conclusion is misleading.

Try something else.

Fri, 04/15/2011 - 02:47 | 1171577 angela03
angela03's picture

 Of course it may be that most people don't relish buying their PM's off of Craigslist. Your advertisement surely struck many as a scam not worthy of attention. 

Wed, 04/13/2011 - 09:03 | 1164715 Infinite QE
Infinite QE's picture

I am shocked however that the CB's have not been loading the boat with LULU and TZOO stocks as the `luminaries' here have been shilling as storehouses of wealth.

Wed, 04/13/2011 - 09:25 | 1164798 HedgeFundLIVE
HedgeFundLIVE's picture

yesterday was just the beginning of the correction upon us!: http://www.hedgefundlive.com/blog/wednesday-market-expectation-41311-today-is-just-the-beginning

Wed, 04/13/2011 - 09:34 | 1164824 savagegoose
savagegoose's picture

i think SDR's are held by a LOT OF COUNTRIES

http://www.imf.org/external/country/index.htm

 

click posistion in the fund

Wed, 04/13/2011 - 12:36 | 1165577 jmc8888
jmc8888's picture

Tell the IMF that the bankster debt lacks credibility. 

No austerity for fraud.

Glass-Steagall

 

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