Gold and silver rose on the open in Asia and have continued those gains so far in European trading with the Libyan military conflict leading to a safe haven bid and falls in the dollar and yen. The all time and multiyear nominal dollar highs set on March 7th ($1,444.95/oz and $36.75/oz) look set to be challenged as gold is less than 1% from its record high and silver less than 2% from its nominal recent high.
Safe haven demand continues especially in Asia and macroeconomic and geopolitical risk remains elevated. The tragedy in Japan and possibility of an ecological catastrophe has clouded the economic picture and created even more uncertainty which will lead to continuing physical demand.
In Japan, many ATMs have not been working for days now and this is leading to safe haven demand for gold. Should efforts to sort out the ATM problem not be resolved this week it could out pressure on the already strained Japanese financial system.
Iran and Other Central Banks Secretly Increasing Gold Reserves
News that Iran and other nations with large dollar currency reserves have greatly increased their gold reserves (see News) will not come as a surprise to our readers. It stands to reason that they would given the degree of exposure which most creditor nations have to the U.S. dollar. It also stands to reason as some of them do not have cordial relations with Washington and may be reluctant to fund the U.S. continuing imprudent fiscal policies.
Gold was not the only precious metal being bought with the FT reporting that the sovereign wealth fund of Qatar, the Qatar Investment Authority is reportedly interested in acquiring both and gold and silver.
The QIA has assets estimated to exceed $65 billion and this one sovereign wealth fund alone could easily corner the very small physical silver market which is worth some $36 billion at today's prices (1 billion ounces of above ground, investment grade refined silver bullion multiply by $36 per ounce).
China Imports 245 Tonnes of Silver in February and Qatar SWF "Interested" in Buying Silver
Central banks and sovereign wealth funds with massive exposure to the dollar, such as the Russians and Chinese, are not going to shout from the roof tops their intentions to diversify into gold and silver bullion as this would lead to a surge in bullion prices and an even greater depreciation of their dollar holdings.
China imported 245.6 metric tons of silver in February. The figure is close to the 260.6 metric tons imported in February 2010 and suggests that the Chinese are more than willing to buy silver at over $30 per ounce. It also suggests that the record Chinese imports of 3,475,394 kilos seen in 2010 (a massive four fold increase from 2009) may be again attained in 2011.
This demand is likely from the private sector rather than official but it is quite possible that there has been official buying in recent months. This may have come from the Chinese State Administration of Foreign Exchange (SAFE) which manages nearly $3 trillion of currency reserves. The Chinese has experienced the collapse of a paper currency and hyperinflation as recently as 1949 and therefore appreciate the value of gold (and silver) as currencies which cannot be debased.
NEWS
(Financial Times) -- Iran bought gold to cut dollar exposure
Iran has bought large amounts of gold in the international market, according to a senior Bank of England official, in a sign of how growing political pressure has driven Tehran to reduce its exposure to the US dollar.
Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed "significant moves by Iran to purchase gold", according to a US diplomatic cable obtained by WikiLeaks and seen by the Financial Times.
Mr Bailey said the gold buying "was an attempt by Iran to protect its reserves from risk of seizure".
Market observers believe Tehran has been one of the biggest buyers of bullion over the past decade after China, Russia and India, and is among the 20 largest holders of gold reserves.
They estimate it holds more than 300 tonnes of gold, up from 168.4 tonnes in 1996, the date of the most recent International Monetary Fund data.
The cable, dated June 2006, is the first official confirmation of Tehran's buying.
Last year central banks became net buyers of bullion after 22 years of large sales, helping drive gold prices to all-time nominal highs. Trades by central banks are often kept secret.
Bankers said other Middle Eastern countries had also been quietly adding to gold holdings to diversify away from the dollar amid political tensions and volatility in currency markets.
"The totality of central bank reserves is not what is reported to the IMF," said Philip Klapwijk, executive chairman of GFMS, a precious metals consultancy. "There's probably another 10 per cent on top of that."
Cables obtained by WikiLeaks cite Jordan's prime minister as saying the central bank was "instructed to increase its holdings" of gold, and a Qatar Investment Authority official as saying the QIA was interested in buying gold and silver.
"There is no question some Middle Eastern countries are very interested in buying gold," said George Milling-Stanley, head of government affairs at the mining industry-backed World Gold Council.
In the past two months, the political unrest in the Middle East has helped propel gold to a record price of $1,444.40 a troy ounce.
The Bank of England declined to comment on the cables, but did not dispute their contents. The central banks of Iran and Jordan and the QIA did not respond to requests for comment.QIA did not respond to requests for comment.
