Daily Nugget: Italy Respects Its Gold Reserves

‘Mr Speaker, it is now midnight and the government of the United States is now closed.’ These were the words that rang out across America last night after a deal failed to be made over the budget. The gold price held losses as many believe the shutdown will be short-lived. The price of silver also remains little-changed.

COMEX gold futures ended the day slightly lower yesterday ahead of the imminent partial shutdown. Whilst many believe gold should be acting as a safe-haven at present, the buying patterns suggest it is being treated more like a raw commodity. Safe-haven demand may kick in as the debt-ceiling and budget shutdown continue to drag on. The debt-ceiling issue is more likely to be a key focus point for gold market participants.

Earlier in the day gold experienced a mini rally ahead of China’s week-long national holiday and the imminent shutdown.

September climbs

Despite recent weak safe haven buying, gold had its best quarterly performance this year. Following its sharp 23% drop in Q2, gold gained 8% in the last quarter

September was a great month for coin sales, according to the US Mint. After the phenomenal demand seen in April, each month following has seen monthly declines. Last month, however was the first month where gains have been made U.S. Mint revealed that combined Eagle and Buffalo gold coin sales were 23,000 ounces in September, compared to August sales of 21,500.

Gold-backed ETFs suffered in September, experiencing 21 tons of net outflows. So far year-to-date net outflows are 697 tons. Barclays state that for as long as net outflows continue, ETFs will not provide any support to the price of gold.

In India, gold buyers must feel like Christmas has come at once. Gold importers believe the customs department will clear any remaining shipments at airports by the end of the week. Meanwhile any issues in the US may see a weakening of the dollar which will make gold cheaper, just in time for India wedding season.

Gold and silver on COMEX

Harriet Hunnable, Managing Director of Metals at CME Group Inc, (CME), told Kitco yesterday that the CME has seen a 15% increase in activity in the last year, the majority of which is thanks to Asia. She also said that traders are looking at the open interest on COMEX, she believes this could determine the next price move. “Coming up to December, watch the open interest of the gold options. That’s telling you what the market is thinking about.’

As expected silver options contracts outperformed gold, with a growth of 29%. The smaller 1,000 ounce contract has also been very popular.

Central bankers aren’t so daft

A few months ago the World Gold Council suggested the Banc d’Italia use its gold reserves as collateral for their sovereign debt. But this doesn’t look like an option following a speech by Salvatore Rossi, director general of the Italian central bank. The country has the world’s fourth largest gold reserves and they play an important ‘component of central bank reserves.’

The speech, at the LBMA conference, showed that Europe’s major central bankers know perfectly well how important their gold reserves are for a central bank’s stability. Rossi said, ‘Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets that is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.’

Reuters reports that both the French central bank and Bundesbank confirmed yesterday that they too have no plans to sell their gold.