BoE gold commands high premium, signals central bank buying

Bloomberg/Yvonne Yue Li and Jack Farchy

Repost from 6-1-2021

photo of Bank of England gold room“Gold stored at the Bank of England has been selling for unusually high premiums recently, signaling that central banks may be bank in the market buying.”

USAGOLD note 1: We cited this report in Friday’s DMR and post it here for those who may have missed it and to add a few comments. As we mentioned in Friday’s report, the sudden influx of this unusually strong demand is somewhat mysterious. Bloomberg cites mobilization of one million ounces or more than 30 tonnes – not a small number when you consider Poland’s purchase of 9 tonnes in 2019 was reported as one of the largest ever by an EU member central bank. In fact, Poland might be the mystery source given its public pronouncement this past March that it was in the market for another 100 tonnes of the  metal. At the same time, we will not rule out a  possible connection – direct or indirect – to the upcoming implementation of Basel 3 accords. (Please see the USAGOLD Special Report: Will Basel 3 boost gold and silver prices?)

USAGOLD note 2: The Bloomberg report says that the reason for the burgeoning gold demand from central banks is “to diversify their portfolios away from the U.S. dollar to safeguard their finances amid concerns over the Fed’s ultra-loose monetary policy, massive U.S. government spending and inflationary pressures.” We see that as a rational response to current economic circumstances. It is not just the United States that is in the business of debasing its currency, but most, if not all, of the states issuing internationally traded currencies. The Bloomberg article avoids the question “Who would be a seller of physical metal in these precarious times?” If the source of the demand does indeed turn out to be a single central bank, the market will consider it manageable. If, on the other hand, it somehow has to do with Basel 3, it could be just the tip of the iceberg.

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