Daily Nugget: Moscow Exchange To Introduce Gold, Silver Trading

Yesterday there was some movement from Republicans on the debt ceiling issue. US stocks rallied as GOP members prepared to meet Obama for the first time since the shutdown. Obama did not reject or accept the plan offered and both sides pledged to keep discussions going.

Meanwhile the gold price continues to trade in a narrow range showing little overall direction. The high seen on September 30 of $1,353.80 is seen as resistance to the upside however this week’s high of $1,330.80, is will show some small resistance.

Weekly surveys see an overall bearishness for the price of gold next week as it is expected to continue to trade in a narrow range, awaiting US government negotiations. Bearish attitudes come as a markets await a compromise to be met in the US. No-one appears to believe the October 17th deadline will be breached.

Also yesterday the G20 meeting between central bankers and finance ministers began in Washington. Officials are growing increasingly concerned about the impact the US debt ceiling/shutdown is having on the global economy.

Holdings in the SPDR Gold Trust fell to February 2009 lows of 896.38 tons yesterday.

European central bank gold purchases
According to new World Gold Council data, European central banks sold the lowest amount of gold since 1999, as part of the 1999 Central Bank Agreement.

Just 5.1 tons were sold, Germany sold 5 tonnes and an unidentified bank sold 0.1 tons in the year through to September. This is the lowest amount sold since European central banks agreed to limit sales in 1999.

The report shows that banks have consistently failed to reach the allowed limit since 2003. 4,084.5 tons have been sold since the first five-year agreement in 1999. We are currently in the third five-year agreement (started in September 2009) which has seen 200.5 tons sold so far.

Moscow Exchange launches gold contracts
The Moscow Exchange has announced that it expects to introduce gold and silver trading this month, making the precious metals more accessible to smaller banks. Prices will be quoted in rubles per gram, minimum trades start at 10g of gold and 100g for silver.

This is a big step for the second-largest producer of gold. Following in China’s footsteps, the Moscow Exchange mimics the Shanghai Gold Exchange in that it augments OTC trading and has broadened the array of trading instruments to be used for hedging and liquidity. Unlike the SGE, swap agreements will be introduced.

Like China, Russia is a major gold and silver producer. This move by a stock and currency exchange has the potential to play a significant role in the gold market and perhaps price discovery one day.

The bourse’s Deputy CEO Andrey Shemetov, told Bloomberg, ‘A transparent, exchange-based market will emerge as the best place for determining fair value for Russia’s precious metals…We hope to bring some change to Russia’s precious metals market whose current structure is primarily vertical.’

Contracts can be settled via delivery to and from unallocated metal account, banks can also withdraw bullion bars from a Moscow vault. The exchange expects the contracts to appeal to both institutional and private investors in the long run.