Email of the day on central bank activity in the gold market
Comment of the Day

June 14 2022

Commentary by Eoin Treacy

Email of the day on central bank activity in the gold market

Do you think there is much Central bank activity in the gold market? I can see countries like Turkey and Russia (?) selling to meet current requirements and on the other side countries ideologically opposed to the US wanting reserves which cannot be sanctioned. I guess data is kept secret but.....

Eoin Treacy's view

Thank you for this question which I suspect will be of interest to the Collective. Russia miscalculated how strong Europe's response would be to the invasion of Ukraine, so it does not have access to nearly as much of its reserves as it might like.

I don’t think Russian sales are especially relevant to the gold market. The country is currently experiencing very favourable balance of payments, even if it comes at the expense of the domestic population’s living standards.

More than any other factor the willingness of the USA and EU to confiscate sovereign assets alerts countries to the risks of holding their reserves overseas. In future, it is reasonable to expect much greater diversity of locations for gold repositories.

Turkey buys all domestic production of gold and turns a profit by selling it on the open market as the Lira is devalued. That’s been a headwind for prices of late and many other countries are too busy dealing with tight financial conditions to significantly increase their gold holdings.

The price is hovering at $1800 at present and has so far sustained the progression of higher reaction lows. However, it will need to find support soon if the rounding base formation is to be given the benefit of the doubt.
My concern with gold is that it was not immune from widespread selling pressuring during the last recession. It bounced back strong and hard after a decline, but that kind of volatility can play havoc on a leveraged position. Therefore, I will be willing to buy more unleveraged gold mining stocks on a pullback, but I’ll have to trim my leveraged gold position if it falls much further.

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