LONDON (Commodity Online): The vast array of macro insecurities has provided a fertile backdrop for gold, particularly when concerns escalated over the US debt ceiling last year and the Fed pushed out the guidance for the first interest rate hike this year. However, broad risk reduction and the need for liquidity have still been able to pressure prices lower. One underlying positive for the market has been the continued appetite for net buying from the official sector globally amid the sovereign debt issues, said Barclays Capital in a research note.
Barclays noted that the initial euphoria over the Greek parliamentary approval of the new austerity measures has largely worn off as a number of steps remain to ensure that there is no disorderly default. The ongoing sovereign debt issues have raised questions as to whether the central banks would or should sell their gold to ease the debt problems. The European central banks are substantial holders of gold and relative to total reserves hold a large share.
For example, Italy, the world’s third-largest national holder of gold, holds 2,451.8 tonnes, making up 71% of its total reserves. Although the Central Bank Gold Agreement limits sales in any given quota year (ending in September) and the use of gold proceeds in relation to debt, it could technically be revised in extraordinary circumstances, given the current environment is unprecedented, but this may cause far greater reputational damage.
"But we believe, even beyond the technicalities, selling gold reserves is not a “golden ticket”, as it would very much be a short-term fix and, perhaps more importantly, weaken balance sheets by switching out a hard asset," Barclays added.
For example, Italy does hold a substantial amount of gold, but even selling all of this would yield just over $130bn, which represents just 6% of Italy’s debt. Greece owns 111.6 tonnes, making up 83% of its reserves, but at a dollar value of $6bn it only represents 1% of total debt outstanding.
Indeed, on the demand side, the latest IMF statistics reveal a continuation of central bank net buying, with net purchases of just under 40 tonnes in December alone; and including Turkey’s new policy of accepting gold in its reserve requirements from commercial banks increases net reported inflows to 387 tonnes for the year, Barclays concluded.
