An interesting fact has hit the newswires earlier this week, as the Dutch Central Bank confirmed it was looking to (temporarily?) move its gold reserves to another secure location. The DNB claims it has to renovate its vaults and thus needs to store the yellow metal elsewhere and that’s quite surprising as the central bank repatriated a large part of its gold reserves less than 18 months ago.
If this renovation has been scheduled a long time ago, why were the Netherlands so anxious to bring its gold back home? And why is the central bank using ‘renovations’ as the official reason even though some officials have indicated the DNB might be looking to permanently store the gold elsewhere?
Of course, as it’s a government institution, ‘poor planning’ always is a very valid excuse and even though it would make more sense to first think where the DNB would store the gold, politicians and commissioners appointed by the political system aren’t really known to make the best decisions. But there’s another possibility here. Officially, the Dutch central bank is no longer leasing its gold to commercial counterparties, but the possibility the central bank has been forced into a corner by the other central banks is not impossible.
The demand for physical gold is booming, and it’s a very big coincidence the Dutch Central Bank is considering to move its gold again during these volatile times. After all, we can’t imagine the bank will find a suitable place to store almost 200 tonnes of gold within the next few quarters or years so if the renovation of the bank is really necessary, where do you think the DNB will have to store its gold again? Yes, indeed, in the vaults of another foreign central bank.
This could indicate two things. First of all, it’s possible the DNB has been asked to do certain other market participants a favor by delivering physical gold upon their request as some parties on the futures-market might be unable to effectively deliver the gold their futures are representing. There obviously is no hard evidence to support this theory but even by looking at just the retail sales of the US Mint, the gold sales have more than doubled compared to last year. In the first 7 weeks of this year, the total amount of American Eagles minted and sold consisted of almost 200,000 ounces gold whereas the total demand for gold in January and February (full month) was less than 100,000 ounces in 2015 and just 120,000 ounces in 2014. So the demand for bullion is definitely there, both from retail and from central banks.
China still remains the largest net purchaser of gold as the country acquired 128 tonnes of the precious metal (4.1 million ounces) in just December and January so the total amount of physical gold available for other market parties is very low. In fact, we estimate China took delivery of a total amount of gold in 2015 equivalent to 40% of the annual world production and that should tell you a lot, as India also imported a total of 1,000 tonnes of the yellow metal. So, the total demand for physical gold from India and China combined is the equivalent of in excess of 70% of the total gold production in the world, and that’s massive.
Throw in the fact the total amount of registered gold at the COMEX (the gold that is available for physical delivery) has reached multi-year lows (see the previous image), and the decision of the Dutch Central Bank to think about ‘relocating’ the gold again is very intriguing.
On top of that, ABN Amro, which has been extremely bearish on the gold price, predicting we would see $800-900 soon has now completely changed its mind and is now predicting to see $1300 before the end of this year.
An acute outbreak of gold fever? Time will tell!
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