Gold Purchases in Official Sectors Remain Robust as Macroeconomic Uncertainties Heighten

Gold rebounded in European session as investors worried about global economic slowdown and ongoing deficit problems. The benchmark Comex contract rose to as high as 1632, just a few dollars below the record high of 1637.5, earlier in the day. Oil prices were pressured as economic fatigue might dampen demand. Benchmark WTI and Brent crude contract fell to the lowest levels in recent weeks and might weaken further.

The Bank of Korea bought 25 tons of gold over the past 2 months, the first purchase in more than 10 years. The central bank's statement showed that the latest gold purchase was valued at $1.24B. While the amount was too small to move the market, it signaled gold purchases in official sectors remained robust as central bankers sought to diversify their assets away from the US dollar. The central bank believed this is the right period to buy gold as the country's total reserves reached $300B. South Korea 'had too small an amount of foreign reserves to diversify into gold before 2004 and was not able to buy gold between 2005 and 2007 due to concerns about the central bank's annual losses'. With the total reserves topped $300 billion and foreign exchange markets stabilized, it's now an appropriate to increase gold holding.

Before the announcement, South Korea, Asia's 4th largest economy, ranked number 56 in the world's official gold holdings with its 14.4 tons of reserve. Its ranking will be risen to number 45 after addition of the 25-ton holding. Yet, at 0.4%, the proportion of gold in total foreign reserve remained small when compared with 74.4% in the US and over 60% in the Eurozone. Indeed, gold holding as % of total foreign reserve have been insignificant when compared with international average. China is the world's 6th largest gold holder, yet it only represents 1.6% of total foreign reserve as of July, according to IMF's data. India ranks number 6 in the world's official gold holdings but it represents 8.7% of total foreign reserve.

On the macro front, Swiss data were quite strong with retail sales jumping +7.4% y/y in June after contracting -3.9% (revised from -4.1%) in the prior month. The market had anticipated a milder gain of +1.6%. On monthly basis, Swiss retail sales jumped +7.1% in June, following a -3.5% drop in May. The SVME PMI surprisingly edged +0.1 point higher to 53.5 in July, compared with consensus of a dip to 52.5. In the Eurozone, PPI eased further, falling to +5.9% y/y in June from +6.2% in May and +6.8% in April, amid weaker growth in oil prices. In the US, personal spending probably grew +0.2% in June after staying flat in May, while personal income rose +0.2% in June, easing from +0.3% in May.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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