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WGC says gold poised to bounce back; GATA asks what’s going on

by Greg Klein | August 23, 2018

Even with prices floundering around 20-month lows, the World Gold Council sees technical and fundamental reasons for optimism. But a sustained recovery would depend on consumers and long-term investors, the industry organization stressed.

WGC says gold poised to bounce back; GATA asks what’s going on

A strong U.S. dollar helped push gold below $1,200 this month for the first time since early 2017. Yet given past performance, the “increasingly short” futures positions bode well for a sharp rally, the WGC stated. Other positive factors include larger consumer and investor gold markets in emerging countries, where demand in those two areas has doubled over the last 20 years. Central banks in emerging markets have also been expanding their holdings, now accounting for about 500 tonnes of annual demand.

Russia bought more gold in July than any other month since November, Bloomberg reported. Citing IMF data, the news agency said the country bolstered its reserves by 26.1 tonnes in July, for a total of 2,170 tonnes that the central bank values at $77.4 billion. Last spring Russian First Deputy Governor Dmitry Tulin called gold “a 100% guarantee from legal and political risks,” Bloomberg added.

Discussing possible catalysts for a gold rally, the WGC included expansion or long-term application of trade sanctions, higher inflation resulting from nationalist economic policies, and European risks ranging from Brexit to the continent’s exposure to emerging market debt. Although growing strength in the U.S. dollar might continue to keep gold down, the organization said geopolitical risks to the global economy might overcome the dollar’s effects.

As usual, a different perspective came from the Gold Anti-Trust Action Committee. Earlier this month GATA’s Robert Lambourne questioned recent activities by the Bank for International Settlements. The gold broker for most central banks increased its use of gold swaps and gold derivatives by about 17% in July. “The bank’s total estimated exposure as of July 31 was about 485 tonnes of gold versus about 413 tonnes as of June 30,” he stated.

The increase came as there increasingly appeared to be a correlation between the gold price and the valuation of the Chinese yuan, both of which fell substantially during the month. The BIS refuses to explain what it is doing in the gold market and for whom, engendering suspicion that it is helping one or more of its members to manipulate the currency markets through deception.

To place the bank’s use of gold swaps in context, its current exposure of 485 tonnes is higher than the gold reserves of all but 10 countries.

Speaking with Kitco News, Avi Gilburt of ElliottWaveTrader.net expressed caution about a possible rally. “Until there is clear bullish direction in the market, investors who want to trade gold should stick with GLD,” he emphasized.

Gold fell from this year’s high of $1,357.70 in January to $1,173.78 last week, before moving up to a press time price of $1,185.03.

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