Brazil Buys Gold Bullion

The gold price climbed slightly yesterday, whilst it didn’t react any further to the vanilla FOMC announcement, it does seem to have found a floor underneath at the $1,700 price level. This may be in part thanks to the drying up of recent selling by those who would have exited quickly in recent weeks after deciding to buy gold in the price run up a couple of months ago. Yesterday holdings in gold-backed exchange-traded products hit a new record of 2,585.1 tonnes. The fact the yellow metal has held its ground at $1,700 seems to have provided some comfort to the markets.

Whilst gold’s consolidation is likely to continue for some time, possibly trading sideways over the next few months, it is still likely to perform better than other commodities according to attendees of the World Commodities Week conference. Considering the impact of droughts on agricultural produce and the economic slowdown spreading, there is little change in the supply of gold in comparison. This is once again a demonstration of the growing appreciation for gold’s ability to protect investors when times of economic woe lie ahead.

Brazil decides to buy gold

In IMF data released yesterday, Brazil decided to buy gold bullion last month, increasing their gold reserves by 1.7 tonnes to 35.3 tonnes, the first time since 2008. Turkey and Ukraine also had a bit of a spend, whilst Russia and other FSU countries embarked on some profit-taking and sold some reserves.

Analysts believe this move by Brazil is unlikely to be a one-off; a country of this size is clearly making moves to buy gold bullion for the long-term, taking advantage of the gold price consolidation whilst protecting themselves from inflation and risks to the international monetary system.

In the early hours of this morning Japan’s core-CPI figures have been released. Showing continuing deflation, this has prompted speculation that the Bank of Japan will announce further injections of cash. This will come as no surprise, especially as politicians have been calling for it for some time. Gold hit an early high of $1,714 as a result of both this and early Asian buying, but has petered out since then.

How the gold price will finish the week will be interesting to see; gold for December delivery has finished progressively lower each Friday this month. Last week of course, CFTC figures showed hedge funds and other big traders had cut their bullish bets on commodities.

Today, the last Friday of the month, gold has lost 5% of its price this October, as we said yesterday much of these seems down to short-term investors, as we can see from ETP figures and central banks who have decided to buy gold bullion, the gold game is the long game.

Following on from yesterday’s article on Germany’s gold reserves, The Bundesbank has told the media that they are working with various central banks to work out details of ‘auditing rights’. The Federal Reserve has told Bloomberg that they are committed to working with the German Central Bank, in ways that are “consistent with its own security and control processes and logistical constraints.”

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