• 58 days Could Crypto Overtake Traditional Investment?
  • 63 days Americans Still Quitting Jobs At Record Pace
  • 65 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 68 days Is The Dollar Too Strong?
  • 68 days Big Tech Disappoints Investors on Earnings Calls
  • 69 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 71 days China Is Quietly Trying To Distance Itself From Russia
  • 71 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 75 days Crypto Investors Won Big In 2021
  • 75 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 76 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 78 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 79 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 82 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 83 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 83 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 85 days Are NFTs About To Take Over Gaming?
  • 86 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 89 days What’s Causing Inflation In The United States?
  • 90 days Intel Joins Russian Exodus as Chip Shortage Digs In
Is It Time To Pay Attention To Gold Miners?

Is It Time To Pay Attention To Gold Miners?

The invasion of Ukraine by…

U.S Targets Russian Gold Stockpiles

U.S Targets Russian Gold Stockpiles

In its latest round of…

Arkadiusz Sieron

Arkadiusz Sieron

Writer, Sunshine Profits

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of…

Contact Author

  1. Home
  2. Commodities
  3. Precious Metals

How Central Banks Impact Gold Markets

Gold

The latest edition of LBMA’s Alchemist focuses on the role of central banks in the gold market. Sylvie Goulard, Deputy Governor of Banque de France, wrote the first article, entitled Banque de France and Gold: Past and Future. According to her, the central bank of France has always been a major player in the gold market. Indeed, in the 19th century, Paris was a major gold centre, while Napoleon (20-franc gold coin) was one of the iconic coins of the 19th and 20th century. And, since its creation in 1800, the Banque de France has held one of the largest gold and silver reserves in the world.

Even today, although French people use euro, which is purely fiat currency, the central bank holds about 60 percent of its total reserves in gold! In physical terms, the Banque de France maintains above 2,436 tons of bullion, which places it right behind the podium, as only the US, Germany and Italy (and the IMF) keep more gold in the vaults of their central banks. It means that France’s national gold reserves are valued at around $96 billion, or about 4 percent of the country’s GDP.

The interesting thing is that the Banque de France stores its gold in the famous Souterraine, which is a huge underground vault situated 29 meters below the level of the River Seine, street level (or 40 m below the suspended auditorium).

Removing the Cloak from Central Bank Gold Operations

Another insightful article about the links between central banks and gold is Removing the Cloak from Central Bank Gold Operations by Isabelle Strauss-Kahn, who is a consultant now, but previously worked for the Banque de France, the World Bank, and the Bank of International Settlements.

She describes a few interesting periods of the gold market. One of them is the so-called Brown Bottom, or the sale of more than half of the UK’s gold reserves in a series of auctions to be operated by the Bank of England. The price of gold dropped as a result, as the sales exacerbated the fear that some big gold holders, such as European central banks would follow, especially in the context of introduction of the euro, and the price of gold would collapse. This is why the first Central Bank Gold Agreement was signed in Washington DC on 26th of September Related: Holiday Season Brings Little Cheer To Gold Markets

1999 to limit official sales and reduce uncertainty in the market, setting the psychological stage for the next gold bull market.

The author concludes that central banks still do consider gold as a reserve asset which is useful to hold, even if it does not pay any dividend or a high return.

Recession, Rates, and the US Retail Investor

The last article we would like to discuss is the Recession, Rates, and the US Retail Investor by Suki Cooper, Precious Metals Analyst at Standard Chartered Bank. The article is not about central banks, but it provides a few interesting insights about the gold market outlook. For example, she forecasts US GDP growth to slow to 2.6 from 2.9 percent in 2018. Given that we are unlikely to see a recession in 2019 in the US, while inflation will not rise much above the Fed’s target, gold prices will not rally significantly. However, the author maintains positive outlook for gold prices and expects them to trade towards $1,300 per ounce over the coming months.

The justification for the bullish forecast is that the Fed should enter the final stages of its hiking cycle, possibly falling behind the curve. But the US central bank does not seem to want to drop its policy of gradual tightening of its monetary policy. The trade wars are also cited as a supportive factor. However, the impact of geopolitical risks on gold prices is often overstated. Surely, if the renewed tensions between Russia and Ukraine transform into something larger, we could see a short-term gains in gold. But investors should remember that numerous risks have recently failed to trigger a flight into gold. Stay tuned!

By Arkadiusz Sieron for Sunshine Profits

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment