June 2015 Review

Russia resumes its stockpiling of gold, China establishes a $16bn gold fund, demand for European gold increases and silver heats up.

Russia resumes stockpiling gold

After suspending its gold purchases at the beginning of 2015, Russia has now returned to buying and stockpiling gold. This move comes ahead of its central bank planning to cut borrowing rates.

Russia has faced strict United States and European sanctions recently, as well as a collapse in oil prices. These combined factors have led to the Central Bank of Russia raising interest rates and the Kremlin buying the largest volumes of gold since September 2014 – when Russia was in dispute with the West over Ukraine. Russia’s total stocks of gold reached 1,238.3 tonnes last month, an increase of more than 30 tonnes on February, according to the International Monetary Fund.

Germany buys up gold amid uncertainty

Gold demand in Germany has risen due to economic doubt. As the Greek default threat looms large, more German investors are buying gold to hedge against uncertainty in the market. A Greek default would have an impact on the value of the euro, the currency common to both countries.

Another factor affecting this uplift in gold sales is the €1.1 trillion programme of quantitative easing by the European Central Bank, which was announced earlier this year. Quantitative easing, which involves printing more money to stimulate the economy, has never been popular with Germany and the country has a deep historical fear of inflation, hence the preference for gold as a store of value.

The first quarter of 2015 saw Germany increase its gold purchases by 20%. “This was the strongest start in Europe for gold coins and bars that we have seen since 2011,” Alistair Hewitt, Head of Market Intelligence at the World Gold Council told The Telegraph.

The rest of Europe is also seeing an increase in demand for gold bars and coins. Overall this larger appetite has meant a 16% year-on-year uplift in sales, according to the World Gold Council.

Gold demand still highest in Asia

Despite Europe developing more of an appetite for gold, China and India still accounted for 54% of consumer demand in the first three months of 2015.

China plans to establish a $16bn gold fund

Gold prices could be set to rise thanks to China’s plans to set up a new gold fund aimed at boosting trade across Asia. The scheme, known as the Silk Road initiative, will reportedly include an exchange fund for gold and investments in miners of the precious metal. It will be run by a new company to be established by gold producers and financial institutions.

Austria to repatriate £3.5bn of gold

The Austrian National Bank is planning to repatriate 80% of its gold reserves, amounting to £3.5bn. The gold, which is currently stored in the United Kingdom, will be flown back to Vienna over the next 5 years. The move comes after Austria’s auditors warned against the risks of keeping the majority of the reserves in a foreign country.

Silver heats up thanks to solar power

Silver has seen a strong resurgence thanks to its use in solar panels. As more and more consumers and businesses install solar power to homes and offices, the demand for silver is set to rise even further. Silver is a key element in the cells which are used to build the panels.

More than 877m ounces of silver are currently mined every year and it’s predicted that demand could outstrip supply as solar power gains even more popularity. China is one of the biggest consumers of solar power. The country is expected to install 17 gigawatts of solar capacity by the end of 2015.

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