Some potentially interesting central bank data came from the latest edition of the IMF’s International Financial Statistics. The Bank for International Settlements’ gold holdings, which include the bank’s own gold and also gold held on behalf of other clients, rose from a net 156t in December to 328t in January, says VM Group research for Fortis Bank Nederland - Metals Monthly April 2010.

Following are the details of the Metals Monthly April 2010 report card on gold:

When gold fixed at $1,163.50/oz on 12 April, there was a case for saying it had hit a new all-time nominal high in global terms. Yes, it remained more than $50/oz, or 4.5%, lower than its highest ever London fix of $1,218.25/oz on 3 December 2009 (the highest PM fix was $1,212.50/oz the previous day).

But the dollar is much stronger now than it was in December against most currencies – up 10% against the euro, and 9% on its “dollar index” (to 81.09 from 74.6). Thus in euros and many other currencies the current gold price is higher than it was in early December 2009 – e.g. the euro price fixed at €861.215/oz on 8 April 2010, 7% higher than on 2 December 2009.

Of course, as we noted in the March issue of this report, this raises the question of which currency gives us the best indication of gold's real strength. If we use the IMF’s Special Drawing Right, or SDR, which is a basket of dollars, euros, yen and sterling to give a broader measure, we find gold hit an all-time high of 762.48 SDR/oz on 12 April, 1% higher than in early December. 

We emphasise this point because clearly it changes the narrative. Instead of describing why gold is rising but remains some way below its peak, we instead are trying to understand a market that is at an alltime high. 

One factor that hasn't been as supportive as we expected is physical demand. There are some signs that this is picking up in key markets; India continues to turn in more positive numbers than it has (imports in March were estimated by the Bombay Bullion Association as 27.7t, up from 4.8t in March 2009).

However, the current high prices could snuff out the recovery there, and elsewhere where things haven't looked so good. For example, there were no gold imports into Turkey in March. 

However this is a market back in thrall to investment demand. The most visible flows, such as into the exchange-traded funds (ETFs), have finally perked up. Inflows into the 17 physically backed ETFs we follow have been positive in each of the six weeks from 5 March, having been negative in the first six weeks of 2010. The most recent week, ending 9 April, saw the largest flow yet, of 410,309 oz.

The major issue gaining market focus at the moment is Greece and its debt crisis. The Eurozone rescue package agreed on 11 April, amounting to some €30bn, with additional funding from the IMF, eased the immediate sense of crisis. But clearly such packages can only buy time; Greece’s problem is that an inability to devalue has left it externally uncompetitive, and this manifests itself in structural economic weaknesses and budget deficits.

For gold however the impact of the crisis tends to ebb and flow. Until the rescue package there was some evidence the gold price was rising in line with Greek CDS rates (a measure of the risk of Greek default), but at other times the weaker euro it entails has meant gold in dollars has fallen when the crisis has intensified.

Clearly however, longer-term this kind of crisis helps gold, at worst threatening as it does another round of defaults in the banking sector and a collapsing euro, at best a continued loose monetary policy from the ECB and the risk of inflation.

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