February 2015 – Week 4 Edition
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European Gold Coin Sales Surge on Currency Fears
With the Greek crisis reviving new rumors of a breakup in the Euro-zone,
we’re seeing European gold coin demand soar. Reuters reported last week that
“German coin dealer Degussa reported a 35% year-on-year increase in its gold
coin sales in Germany in January,” while the Austrian Mint “said its sales of
Vienna Philharmonic gold coins rose 6% year on year in January.” Last week, GFMS
analyst Andrew Leyland said that the threat of the Greek exit (“Grexit”), along
with Europe’s negative interest rates and new quantitative easing (QE, or money
printing) program has motivated European savers to buy physical gold.
Even though gold is flat in U.S. dollar terms so far in 2015, it’s up 6.4% in euro terms since the start of 2015. The crisis in Ukraine has pushed gold up 72% there, while gold in some other nations is up about 5% to 8%. With the dollar strong in terms of most of other currencies, gold is stronger outside the U.S.
Central Banks Bought 477 Tons of Gold in 2014 – Second Best Year Ever
The world’s central banks bought 477.2 metric tons* (15,342,000 Troy ounces)
of gold in 2015 – 17% more than they bought in 2013 and the second-highest
annual total in the last 50 years. The World Gold Council (WGC) said that
central banks spent about $19.4 billion on new gold purchases last year. The WGC
report also said that in the last five years, central banks bought 1964 metric
tons of gold (393 tons per year). For 2015, WGC expects central banks to buy
another 400 tons of gold.
The central bank of Russia was the biggest buyer, accumulating 173 metric tons – over one-third of all central bank purchases. The Russian ruble was one of the weakest currencies in the world in 2014. (After Russia, the next biggest central bank gold buying in 2014 came from Kazakhstan and Iraq, each of which bought about 48 metric tons.) Gold now represents about 12% of Russia’s total foreign reserves. Russia is now one of the top five gold-holding nations, behind only the U.S., Germany, Italy and France.
*A metric ton (or tonne) is one million grams, or 32,150 Troy ounces, or 2,205 pounds
Some Gold-Friendly Hedge Fund Managers Still Like Gold
In the middle of each quarter, hedge fund managers must file forms with the
SEC on their holdings at the end of the previous quarter. From the filings
released last month, we learn that John Paulson, the largest shareholder of the
SPDR Gold Trust (GLD), held on to all his 10.23 million shares of GLD (worth
over $1.16 billion) in late 2014. Paulson has held shares representing more than
a million ounces of gold for six straight quarters, despite the gradual price
decline in gold (in U.S. dollars) over the last two years.
We won’t know hedge fund holdings this quarter until May, but inflows into the GLD ETF in the first six weeks of 2015 are up 59.24 metric tons, well above the 6.63 ton gain in the first six-week period in 2014.
Over in Britain, Sebastian Lyon, manager of the £2.5 billion ($3.9 billion) Troy Trojan fund, may be the “John Paulson of Britain.” His fund holds £200 million ($309 million) worth of gold as part of a well-balanced portfolio (including 8% in gold bullion and 3% in gold ETFs for a total of 11% in gold assets). Gold has helped his portfolio grow during stock market declines: The Troy Trojan fund has returned 108% over the past decade, vs. 81% for the average fund in Britain’s “Flexible Investment” fund sector.
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