The Daily Market Report: Gold Firms Amid Greek Concerns, China Accumulation

21-Apr (USAGOLD) — Gold remains narrowly confined with price activity centered on the $1200 level. The euro continues to be weighed by concerns over Greece, which has helped underpin the dollar and perhaps limited the upside for the yellow metal.

As the situation in Greece continues to deteriorate, and the Hellenic Republic hurdles toward default, gold should remain supported within the range. While some continue to hold-out hope of an eleventh-hour deal, it sure seems like Greece’s creditors have recognized that they are no closer to a deal today than they were when the Tsipras government took over nearly three-months ago.

They are understandably frustrated and wondering why they should throw good money after bad. After all, if Greece has failed to find a way back from the brink with €245 bln in bailout funds, is another €7.2 bln going to do anything other than briefly forestall the inevitable?

The Greek central bank moved to confiscate the cash reserves of municipalities yesterday and mayors across Greece are none-too-happy. The mayor of Athens was quoted in an FT article, railing that the move is “clearly unconstitutional, it takes local authorities by surprise . . . and threatens their capacity to contribute to social cohesion and urban development.”

Mayor Kaminis shouldn’t be surprised at all. I would also doubt that was the last extraordinary and onerous intrusion. “Social cohesion” will really be dealt a blow when the government comes for the next logical source of cash…the individual depositors.

Ever since China surprised the world with the huge upward revision to its gold reserves in April 2009 — and expressly stated its intent to continue building its gold reserves — there has been much speculation each and every year at this time as to how that process is progressing. Meanwhile, the “official” number has remained steady at 1054.1 tonnes for the last six years, despite indisputable evidence that the Middle Kingdom has indeed been in full-on accumulation mode.

In the years to come, China will continue to steadily build its gold reserves through domestic production. It will also attempt to purchase whatever gold it can on the world market through official sector purchases or whatever additional means it finds at its disposal. In the process it will become the fire-breathing dragon in the gold market’s living room – ubiquitous and formidable, a presence that cannot be ignored. — Michael J. Kosares, Dragon’s Hoard, June 2009

A Bloomberg article reported yesterday that “The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures.” With China angling for inclusion in the IMF’s SDR basket of currencies, it is reasonable to expect that they will at some point be obliged to reveal the long-awaited updated figure.

In April 2009, gold was trading just above $900, but in the proceeding months, the yellow metal moved back above $1000 to stay. A long series of new record highs followed over the next couple of years, culminating (for the time being) with 1920.84 in September 2011. China’s ‘reveal’ — especially if it’s in the ballpark of Bloomberg’s estimate — would likely have a similar impact on the price of gold.

At that point, we might have to get cartoonist Ed Stein to rescale the famous cartoon that accompanied the Dragon’s Hoard article six-years ago. Then again…maybe not. While the pile of gold will most-certainly be bigger, that makes the Dragon proportionally bigger as well.