Gold surges in Asia, falls back in New York; Romania contemplates gold repatriation

(USAGOLD – February 28, 2019) –  Gold made a fairly strong move to the upside in overnight trading on the announcement that talks had broken down between the United States and North Korea reaching the $1327 level.  It then ran into a wall of selling at the New York open (once again) and fell back to $1320 where it is trading as we post this report.  Silver is down 5¢ at $15.70.  The sharp drop in gold is coincident with an equally sharp rise in the dollar giving credence to the notion that geopolitical events in Asia – trade and military – are pushing capital in the greenback’s direction. The better than expected GDP number announced this morning is also playing a role in gold’s pricing in that it puts interest rate increases back into the mix.

On a more fundamental note, Bloomberg reports Romania is contemplating repatriation of 61 tonnes of gold deposited at the Bank of England.  If the relocation proceeds, Romania will join a list of countries that have decided to repatriate their gold reserves which includes Germany, Austria and Hungary – among others.  The rehabilitation of gold as a national asset has become one of the primary factors underlying gold’s price resurgence since 2016.

Quote of the Day
“The ‘threat’ is best seen through the emergence of exchange-traded funds (ETFs), which allow investors to get a proxy physical gold exposure through an investment via their stockbroker. In truth, these products are, in many cases, more expensive than trading and storing physical gold (especially for larger investors with a long-term investment time frame), have less trading flexibility, and are less secure than owning real physical gold.” – Jordan Eliseo, ABC Bullion/Australia

Chart of the Day

Chart note 1: Sometimes the facts just get in the way. Though China might be tempted to choose devaluation as a tactic in the trade war, it creates other problems for the country that it has tried to avoid in the past – most notably capital flight. The fact of the matter is that China has chosen to do just the opposite. It has kept the yuan in a tight band against the U.S. dollar and sold from its pool of U.S. Treasuries as a means to stabilizing its currency. Since 2014 China’s foreign exchange reserves, as a result, went from nearly $4 trillion to just above $3 trillion since 2014. Meanwhile, the yuan has traded in a narrow channel between 14.5¢ and 16.5¢.

Chart note 2: PBoC governor Yi Gang has stated repeatedly and unambiguously that China “will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.” Part of the narrative behind the dollar’s strong showing of late has been concern that China would ‘weaponize’ the yuan in the trade war. If China is successful in keeping the yuan within a band, it will indirectly offer a helping hand to gold.

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