Gold Advances to Two-Week High as Russia Boosts Reserves

London (Nov 18)   Gold climbed to the highest in two weeks after Russia said it added more bullion to its reserves, fueling speculation that a rebound in physical demand will help stem this year’s rout.

Russia’s central bank has bought about 150 metric tons of gold this year, Governor Elvira Nabiullina told lawmakers today. That’s almost double purchases of about 77 tons in 2013, International Monetary Fund data show. It also implies the nation bought about 35 tons since the end of September as gold prices fell about 3 percent last month and reached a four-year low on Nov. 7.

As futures head for the first two-year slump in more than a decade, coin, bar and jewelry buyers are starting to step in. While bullion demand fell to the lowest in almost five years in the third quarter, central banks may increase their purchases by as much as 22 percent in 2014, the World Gold Council estimates.

Europe’s QE Quandary

“The fact that Russia is buying more gold instead of diversifying into another currency or buying more dollars is a big positive,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview.

Gold futures for December delivery climbed 0.9 percent to $1,194.20 an ounce at 12:20 p.m. on the Comex in New York, after touching $1,204.10, the highest for a most-active contract since Oct. 30.

Prices also climbed today as the dollar fell against a basket of 10 currencies, boosting demand for alternative assets.

SPDR Holdings

Bullion slid 1.6 percent this year through yesterday. Investors shunned the metal as the dollar rallied to a five-year high and U.S. equities climbed to a record. Demand has also waned as the Federal Reserve moves closer to raising interest rates.

Holdings in SPDR Gold Trust (GLD), which was started 10 years ago today, dropped 75 metric tons this year, after losing more than 550 tons in 2013. Assets in the fund, the world’s top exchange-traded product backed by bullion, are near the lowest since 2008.

European Central Bank President Mario Draghi said yesterday that unconventional measures to stimulate the economy may include purchase of a variety of assets. The central bank could theoretically buy sovereign debt, gold, exchange-traded funds, and even real estate to counter a longer period of low inflation, Executive Board member Yves Mersch said, while warning against rushing in.

“Physical demand is healthy,” Bernard Sin, the head of currency and metal trading at MKS (Switzerland) SA, a Geneva-based refiner, said today by phone. “With the ECB comments, it could give support to the market.”

Holdings in global ETPs dropped 8.2 percent in 2014, reaching the lowest since 2009 last week. The assets rose for the first time this month yesterday, adding 1.6 tons to 1,619 tons. In China, trading of the Shanghai Gold Exchange’s benchmark bullion spot contract was the highest since April 2013.

Silver futures for delivery in December rose 0.6 percent to $16.16 an ounce on the Comex.

Source: Bloomberg