What is all this money printing from central banks around the world doing for gold? Find out here, plus all the other Your News to Know.
Every week, Your News to Know brings you the latest news and critical reads regarding the gold market and the overall economy. Stories this week include: Central banks’ pursuit of Quantitative Easing puts gold in a “sweet spot”, the supply of gold is expected to dwindle as its price skyrockets, and Russia’s gold purchases have soared 123% over last year.
Aggressive Quantitative Easing puts gold in a sweet spot
The aggressive pursuit of loose monetary policies by central banks worldwide, most notably through the printing of money via Quantitative Easing, is bound to put gold in an even better place than it already is, according to a report by Kitco News.
Last week, the price of gold in U.S. dollars declined on the back of the Federal Reserve signaling that, due to an improving economy, they may soon tighten their policies.
However, Ronald-Peter Stoeferle, fund manager at Incrementum AG, counters that the U.S. will eventually further loosen their monetary policy to match the trend of other countries. He adds, “With central banks all over the globe, especially in Europe, being eager to fight deflation and to do whatever it takes to create inflation, I think, gold is in a sweet spot,” he states.
Stoeferle also cites the European Central Bank’s extremely loose money printing program as an example of a monetary policy positively affecting gold’s price. We saw this in action only the other week, when the announcement of the ECB’s new program caused the price of gold in euros to spike.
“Gold in euro terms is up 11%; gold in yen terms is at all-time highs; just look at gold against the ruble. This is happening all over the world,” Stoeferle pointed out. “We are in the midst of a monetary policy experiment and gold is a decent hedge.”
Gold supply expected to diminish as its price skyrockets
A recent report from Steve St. Angelo on SRSRocco argues that, as the demand for gold continues to increase, gold supply is slated to become even scarcer. He warns Americans that they are exporting too much gold to the East while placing too much value in the volatile U.S. dollar because of misplaced faith in the Federal Reserve.
St. Angelo states that the Fed’s tactics are unrealistic strategies for the long-term and are placing everyone on borrowed time. “The financial system in which Americans are totally invested, is heading towards an epic collapse. Printing money and increasing debt (exponentially) are not sustainable business practices,” he argues.
Once the financial system collapses, something St. Angelo believes is only a matter of time, America will feel the effects of not holding onto its gold reserves. “When the price of gold rises to its true fundamental value (virtually overnight), Americans will be the biggest paper bag holders on the planet. At this point, there will be no physical gold available for Americans to invest in.”
Russia’s purchases of gold increase 123%
A recent article in RT reports that Russia is selling its dollar assets and purchasing gold in record amounts in the midst of its geopolitical tensions with the U.S. Further, Russia will continue doing so – not only to strengthen their struggling currency, but also to send a message to the U.S. “That will be done both to protect the ruble and potentially to position the ruble as a reserve currency in the long-term, but also as a signal to Washington,” Mark O’Byrne told RT.
With the amount of gold purchased by Russia’s central bank increasing by 123% over last year, this marks the most Russia has spent on gold since the days of the Soviet Union – a relatively strong indication that its central bank is trying to stock up on gold. Not only is Russia the world’s second-largest gold producer, its gold purchases account for a third of global gold purchases. Russia’s 9% yearly increase in gold production is also said to be a factor in the increased purchasing of gold.
“This is a clear positive for the gold price,” Macquarie analyst Matthew Turner told Financial Times. “If central banks had not purchased that gold it would have been bought by private investors or jewelry consumers, and this would likely have required a lower gold price.”
While Russia is expected to eventually sell some of its gold overseas to assist the ruble, this might be a slow process because of sanctions imposed on the country by the European Union.
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