Your News to Know – November 26, 2014
Breaking News about the Economy and the Gold Market
Every week, Your News to Know offers you the latest top news stories about the economy and the gold market. Here’s what we have for you this week: Putin hoards gold (video), 6 reasons to be bullish on gold, and gold still has plenty of upside, says Capital Economics.
Video: Putin Hoarding Gold
Russia has been on a big gold buying spree this year. In fact, the nation’s central bank has bought more gold over the past decade than anyone in the sector, overtaking China’s gold reserves. According to the World Gold Council, Russia accounted for more than half of gold purchased by central banks in Q3.
“They [the Russians] have a lot of petrodollar income from selling oil and foreign exchange reserves, and are looking to diversify, and gold has been one beneficiary of that,” William Rhind, chief executive officer for World Gold Trust Services, told CNBC’s Bob Pisani as they discussed Russia’s strategy and their investment in gold.
Watch the video:
6 Reasons to Be Bullish on Gold
Gold has been traded below production costs, which, according to industry experts can’t go on for long. Analysts at RBC Capital Markets are also optimistic about gold’s prospects in 2015. Here are their six reason to be bullish on gold:
- Sales of ETF holdings have slowed down. ETF liquidations have been a major culprit for gold’s weakness.
- Central banks are hoarding gold. Plus, “Scrap sales of gold have waned and the physical market has tightened,” analysts said.
- Seasonal gold demand has been boosted by India’s wedding season and the approaching Chinese New Year. Spot market premiums have climbed by $18 an ounce in India and $2 an ounce in China after being flat or negative in recent months.
- As the European Central Bank (ECB) is getting ready to expand its balance sheet by 1 trillion euros in its attempt to revive the sluggish European economy, executive board member Yves Mersch has said that the central bank could buy gold as part of its asset-backed securities purchase program – a potential driver for the yellow metal’s demand.
- The lease rates of gold are rising, indicating “tightness in the physical gold market and lending rates tend to rise as holders of bullion become more risk averse and in many cases higher lease rates lead gold price rallies,” said the RBC analysts.
- Russia’s gold hoarding is another reason to be bullish on gold, according to RBC. The country’s attempts to diversity its assets with gold could lead to additional measures to absorb domestic production.
Gold Still Has Plenty Of Upside, Says Capital Economics
Analysts at Capital Economics see plenty of long-term potential for gold. They predict that gold prices will hit $1,400 an ounce by the end of 2016.
“A rebound to US$1,400 would represent a sizeable 17% gain from current levels at a time when the valuations of many other assets, notably developed market equities and bonds, are looking increasingly stretched,” said Julian Jessop, head of commodity research at Capital Economics.
“Given the unfavorable market conditions this year, gold has actually held up remarkably well,” Jessop said in a research note published Monday. “The downside for the gold price from current levels is surely now limited.”
He believes that gold will be supported by strengthening demand in emerging economies, and that investors in the West might turn to gold as a safe-haven investment as geopolitical risks and global economic uncertainty rise, especially in the Eurozone.
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Sources:central banks, china, Featured, petrodollar, russia, vladimir putin, world gold council