Central Bank Gold Buying Surges To Over Over 70.3 Tonnes In April

Gold’s London AM fix this morning was USD 1,558.50, EUR 1,239.27, and GBP 993.62 per ounce. Yesterday's AM fix this morning was USD 1,555.00, EUR 1,229.44, and GBP 989.56 per ounce.
Gold fell $5.60 or 0.36% in New York yesterday and closed at $1,561.20/oz. Gold has been trading sideways in Asia and was slightly lower in Europe prior to buying which saw gold rise to about the close in New York yesterday. 

Fears about Greece and the EU after the EU summit came up short on delivering a grand solution to solve the debt crisis are supporting gold at these levels and leading to some safe haven buying.

EU leaders once again failed to agree to plans with regards to the increasing possibility that Greece exits the euro. Instead, Greece was again urged to continue to meet targets and continue the austerity to complete the ‘bailout’ schedule. 

Meanwhile, the crisis is being compounded by the increasing insolvency of Spanish banks and indeed Spain itself. 

Spain announced a 9 billion euro ($11 billion) bailout of Bankia on Wednesday, and endeavoured to find new ways to meet its demanding financing needs which may pull the country deeper into the eurozone crisis.  The Irish NAMA style solution of creative accounting and kicking the can down the road is being looked at rather than the more prudent, but short term painful, winding down of all the ‘bad’ insolvent Spanish banks.

Gold may struggle to make gains over the coming trading session ahead of the expiry of monthly US options. However, sharp gains could be seen after option expiration – as has often been the case in recent years.

Reuters report that traders said that because the underlying June futures price was trading roughly between $1,550 and $1,600, where most at-the-money open interest was clustered, it was not clear which would exert a greater “gravitational pull” on the gold price.

Most open interest, which reflects investor positioning, is located at $1,550 and $1,600, with a firm bias towards the $1,550 level where gold may be guided towards.

Puts, options that give the holder the right, but not the obligation to sell a predetermined amount of an asset at a set price by a certain date, outnumber calls, or buy options, by nearly 2:1.

Gold 1 Year – (Bloomberg)

The massive reversal higher in the gold mining shares yesterday which saw an outside day reversal to the upside and over 4% gains in the XAU and HUI is another sign that we may be close to a bottom.

Central Banks Still Significant Buyers On Gold Dip
Central banks internationally continue to diversify their foreign exchange reserves into gold bullion due to concerns about fiat currencies – including the dollar and especially the euro.

IMF data shows that central banks were again net buyers in April with Turkey and Philippines being the largest buyers of gold.

The Philippines increased their gold holdings significantly by 32.13 tonnes to 194.241 tonnes in March – a 17% increase in their gold reserves in the month. 

It was the single largest addition Philippines has made since September 2008. They have been pretty consistent buyers of gold over the last few years, but the 17% increase in April was another big rise.

Turkey expanded its gold reserves by 29.7 metric tons in April. Turkey’s bullion reserves climbed to 239.3 tons last month meaning that Turkey increased their gold reserves by 14% in April.

The central bank on March 27 doubled the share of lira reserves banks can hold in gold to 20%, saying it would provide 6.1 billion liras ($3.3 billion) of extra liquidity. 

Mexico increased gold holdings by 2.92 tonnes to 125.5 tonnes in April. 

Kazakhstan raised gold holdings by 2.02 tonnes to 98.19 tonnes in April. 

Ukraine upped gold reserves by 1.4 tonnes to 30.607 tonnes in April. 

Sri Lanka raised gold reserves by 2.177 tonnes to 7.807 tonnes in January. There is a delay in Sri Lanakan gold reserve reporting to the IMF.

Central banks added 456.4 tons last year, the most in almost five decades, and will buy as much as 400 tons this year, the London-based World Gold Council estimates. 

Cross Currency Table – (Bloomberg)

While the gold tonnage demand from central banks in recent months has been significant, gold remains a tiny fraction of most central banks, especially emerging market creditor nations such as China, foreign exchange reserves and therefore the trend is sustainable and indeed may accelerate.

Central bank reserve diversification into gold may increase given the Eurozone debt crisis and the risk of debt crisis spreading to Japan, the UK and the U.S.

Indeed, there is the increasing possibility that some G8 debtor nations, such as the UK and Japan, may decide to once again add to their gold reserves in order to protect their currencies and guard against the risk of devaluations of the euro, dollar, yen, pound and a wider international monetary crisis. 

Price is not a determining factor in central bank buying rather they are more likely being guided to secure an allocation of a percentage of their overall foreign exchange reserves into gold bullion.

Sovereign government buying of gold is likely to support gold at these levels and indeed could be the driver to higher prices in the coming weeks and months.

(Bloomberg) -- Gold Is ‘Good Value’ Below $1,600, Outlook Positive
Important hedge against several trends, incl. inflation risk, devaluation and depreciation of major currencies, Coutts investment officers Alan Higgins and Norman Villamin write in client note dated yesterday.

? See elevated risks of sovereign default

? Short- and long-term outlook underpinned by buying from central banks, emerging-market investors, most notably in China.

(Bloomberg) -- Coffee, Cotton Plunge on Demand Concerns: Commodities at Close

The Standard & Poor’s GSCI gauge of 24 commodities fell 1.9 percent to settle at 616.29 at 3:43 p.m. in New York, led by coffee and cotton, sliding on demand concerns.

The UBS Bloomberg CMCI index of 26 raw materials declined 1.6 percent to 1,464.29.

(Bloomberg) -- World’s Largest Platinum Mine Halted as Workers Stay Away 
Impala Platinum Holdings Ltd. said miners stayed away from work at the world’s largest platinum mine, its Rustenburg operation in South Africa, for a third day as two rival labor unions clash for dominance.

“What’s clear is that there won’t be any work today,” Johan Theron, a group executive for personnel at Johannesburg- based Impala, said by mobile phone. Groups of people blocked entrance roads to the mine, preventing some who wanted to work from accessing the site, northwest of the city, he said. Impala is applying for a court order to force employees to return to work, the company said in a statement.

Union rivalry and a pay dispute prompted an illegal strike in January and February, costing more than 120,000 ounces of lost platinum production, according to Bloomberg calculations. The mine produces about 3,000 ounces of platinum a day. The National Union of Mineworkers, the country’s largest miners’ union, has been dominant at Rustenburg for more than a decade.

Miners refused to go underground on May 21 after hearing some of their colleagues had been arrested, Impala said yesterday. Two workers were arrested on charges of attempted murder after one person was shot and wounded at the mine on May 17, according to the South African Police Service website.

“Prolonged production disruption or delays in the ramp-up could increase the production loss and reduce earnings,” Edward Sterck, an analyst at BMO Capital Markets, said in a note.

The Association of Mineworkers and Construction Union, in a legal notice to Impala, stated it recruited more than 10,000 members at the mine, giving it the necessary representation to demand organizational rights under South African labor laws, Theron said yesterday. Impala, which employs about 30,000 people at Rustenburg, is trying to verify the figures, he said. About two-thirds of the workers belong to unions, he said.

Impala fell 3.9 percent to 135.25 rand in Johannesburg by the 5 p.m. close, bringing its losses for the year to 19 percent.

The mine produced 941,200 ounces of platinum in the year to June 30, or more than 10 percent of world supply. While mining has stopped, processing of ore continues, Theron said.

“Grasping for positives, supply shortfalls should ease the expected industry surplus of about 300,000 to 400,000 ounces in 2012,” Liberum Capital wrote in a research report. Platinum declined 19 percent to $1,428 an ounce in the past year.

Labor is “going through a sea change,” Lonmin Plc, the third-largest producer, said May 14. “Rivalry for membership between the unions could be a feature for the foreseeable future with a corresponding increase in the risk of escalation of costs and disruptions to production.” The AMCU has limited organizational rights at the Karee mining division, it said.

(Bloomberg) -- Deutsche Bank Signs Johnson Matthey Deal on Platinum, Palladium
Deutsche Bank AG said it signed an agreement with Johnson Matthey Plc for custody and storage of physical platinum and palladium ingots and plates for the bank and its clients.

The agreement will provide “a platform for further commercial cooperation,” the bank said in an e-mailed statement today.

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Gold hovers about $1,560/oz; Greece fear persists - Reuters

Gold Extends Drop as China May Slow Amid Worsening Europe Crisis – Business Week

EU urges Greece to stay in euro, plans for possible exit - Reuters

EU Chiefs Clash On Euro Bonds As Crisis Summit Bogs Down - Bloomberg

Printing money is the only thing keeping the UK and US afloat - MoneyWeek

Papademos, Grexit and Catastrophe Blackmail – The Telegraph

US T Bond - Tower of Babel Teeters - GoldSeek

Dollar Backwardation - Inflation and Deflation at the Same Time? -  Zero Hedge