Aggressive Gold Buying Spurs Recent Gold Trends

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Investors seeking safe haven assets and aggressive buying from Central Banks and ETF investors have been spurring the latest increase in gold prices across the globe. Gold prices have been rising over the past couple of months, driven by the sharp stock market selloff and the growing trust and interest of buyers in the gold market.

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Gold rates, which are currently at $1,235 an ounce as of Thursday, are now up more than 4 percent over the past 1 month, but off about 6 percent this year.

However, John LaForge, Head of Real Asset Strategy at the Wells Fargo Investment Institute was quoted by CNBC as saying that “We still have way too much supply even at $1,200 for gold,” he said. “The longer term outlook for gold is a little bit more of a sideways trade.”

According to LaForge, gold is in a “bear supercycle.”

“What that means is we had a period from 2001 to 2011 where gold went from $250 an ounce all the way to almost $2,000,” he said. “It brought out all kinds of supply. We had everyone and their mother out looking for gold in the world, and they found it. So, the price of gold has been sinking ever since.”

LaForge estimates the bearish period will last another 3 to 5 years. He sees choppy trading dominating the environment, with prices predominantly in the $1,050 to $1,350 range.

 

Aggressive Central Bank Buying

Central Banks have shown an aggressive pattern while buying gold this year, as many countries have turned towards an increase in gold reserves.Two weeks ago, Hungary’s central bank announced a tenfold increase in the gold reserves. The Hungarian Central Bank increased reserves from 3.1 metric tons to over 31.5 tons. The Governor of the Hungarian Central Bank, Gyorgy Matolcsy, mentioned that this increase in reserves was done in lieu of the economic and national strategic importance of the country. He further added that the extended gold reserves made the country safer and reduced the risks associated with such investments. This is the first increase in Hungary’s gold reserves since 1986.

Hungary isn’t the only one increasing reserves. Just last month, Poland increased its gold reserves as well. The National Bank of Poland acquired gold reserves in two batches to increase the total reserves by over 9 metric tons.

In all actuality, Central Banks from across the globe have added a total of 264 tons to their reserves. The Russian Central Bank leads the way with an aggressive buying pattern. In July alone, 26.1 tons of gold was added to its hoard. Russian gold reserves have quadrupled during the last 10 years, after the 2008 crisis.

 

Increase in ETF Inflows

Besides the crazy buying patterns by countries across the world, predominantly in Eastern Europe, we have also seen an increase in ETF inflows. Holdings for ETFs grew during each of the last seven trading sessions, resulting in the longest, most sustainable run of gains since April this year. There has been renewed investor interest in gold ETFs during the past month or two, showing signs of the development of a new bull market for gold. In short, if the stock market continues to decline, we can see more funds and investments move into the attractive industry of gold.

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