Tag Archives: central banks

Gold & Brexit

In what was an extraordinary day for global financial markets, and a day which will no doubt become legendary and enter folk memory in the UK and elsewhere, the electorate of the United Kingdom voted 51.9 % to 48.1% to leave the European Union. As the first count results began trickling in during the very early hours of Friday morning London time from northern England constituencies such as Newcastle and Sunderland, the cosy optimism that had prevailed in the Remain camp became increasingly agitated as the voting majority swung to the Leave side and quickly snowballed, in what was a shock to many.

Gold Philharmonics and Silver Philharmonics with Euro notes

The Sterling – Dollar cable rate plummeted, gold took off, especially in GBP, and BBC presenters became increasingly stony-faced and pale looking. By 3:40am UK time, Leave was ahead by 500,000 votes, and just an hour later the major UK networks of first ITV and then the BBC called the election to the Leave camp. Nigel Farage, promoter of the Leave side and leader of the UK Independence Party (UKIP), who had earlier conceded then un-conceded defeat, reappeared to the press and when asked what he would do next announced that he was going for a celebratory drink. As Farage and his boisterous entourage were undoubtedly finding a suitable early hostelry to settle into in Westminster, an ashen-faced British Prime Minister David Cameron appeared in Whitehall to announce his resignation in what had already become a day of records.

Gold & Silver Prices

All this time gold was soaring and the British Pound was folding. Gold in GBP started moving at 2:45am UK time when it was at £852, and as the voting tide turned, gold in GBP peaked at 5:30am at approximately £1004, an 18% move in less than 3 hours. GBP gold then fell slightly from the peak and has settled into a roughly £950 to £960 range.

Gold In GBP 24th June 2016

US Dollar gold, which had been as low as $1250 before the voting pattern emerged, surged past $1300 before 3am UK time, and peaked at just under $1340 before 6am UK time, for an up move of 90 bucks, before it too fell back slightly into a range of $1310 to $1325.

Gold in USD 24th June 2016

Silver also had dramatic gains intraday, especially in GBP. Silver in GBP 24th June 2016.

Exchange Rates

GBP - USD suffered an unprecedented fall by over 11% at one stage today, moving down 18 cents at one point from $1.50 to a 31-year low of $1.32, a level not seen since mid-1985. It was since recovered partially to trade at $1.375, still down over 8% on the day.

GBP - USD one day rate, 24th June 2016

The Euro weakened significantly against major currencies, one of the reasons being that the uncertainty of the UK’s exit from the EU may precipitate further defections that could include a Eurozone member country. FTSE equity indices fell sharply intraday before recovering somewhat. Bank shares were hammered especially the shares of UK and European banks.

Gold - Flight to Safety

The massive moves and volatility spikes caught much of the financial markets off-guard, hence the dramatic price movements and flight to safety. As gold was bid, it has yet again proved its role as one of the world’s preeminent safe havens and protectors of wealth that investors will flock to in times of crisis and fiat currency uncertainty. According to ICBC Standard Bank, as cited by the Financial Times, the Shanghai Gold Exchange traded a record equivalent of 143 tonnes of gold during its trading day today – 24th June. One person who seems to have been confident of a Leave win is Arron Banks, a rich donor to the Leave side. He was said to have commissioned a poll of 10,000 people (which is a large sample size), and the results of this poll, released today, revealed a 52 – 48 win for Leave. So perhaps some hedge funds and investment banks were privy to similar data last night.

Central Bank Intervention

The world’s major central banks, who were meeting in Basel at the Bank for International Settlements this week, may appear to have been also blindsided by the election result, however, being the conservative types, they seem to have been prepared for this contingency and have, in a not too subtle way, indicated their collective intention to intervene in the FX and funding markets in a coordinate fashion, and with total disregard of the free functioning of financial markets. Central banks are by their very nature interventionist, meddling and secretive in their interventions, so this is hardly surprising. However, its more blatant than usual.

The Bank of England announced that it “will continue to pursue responsibilities for monetary and financial stability relentlessly”. This use of ‘relentlessly, is quite ominous bank-speak and could even suggest intervention in the gold market, since after all, the Bank of England houses its FX and Gold operations on the same desk and is allowed to use all assets of the HM Treasury’s Exchange Equalisation Account (EEA) to pursue monetary stability. So some ‘smoothing operations’ or ‘stabilisation operations’ on the gold price by the Bank of England (or by the BIS) are not beyond the bounds of possibility. In fact, it is logical for the major central banks to intervene in the gold market since they do not want gold to play the role of canary in the coalmine as this counters their ‘stability’ meme.

The ECB said this morning that it “stands ready to provide additional liquidity in Euro and foreign currency, in close contact with other central banks

In its statement today, the Bank of Japan said that it has ”a network of currency swap arrangements is already established by the central banks of major countries. The Bank of Japan will take appropriate measures as necessary, including activation of this network”.

Meanwhile, the US Federal Reserve announced that it is "carefully monitoring developments in global financial markets, in cooperation with other central banks,….The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets..”

Not to be outdone, the Swiss National Bank (SNB) didn’t just threaten to intervene, it did intervene today as the ‘Swiss franc came under upward pressure’. According to an email sent to Bloomberg by the SNB “has intervened in the foreign exchange market to stabilize the situation and will remain active in that market”.

Demand for Physical Gold

BullionStar saw noticeably higher website traffic today with higher demand and sales than normal, but BullionStar does not have the shortages in inventories that are being reported by other dealers. In fact, BullionStar has plenty of stock.

Where there does seem to be tightness in the physical gold market is in the London wholesale market, where gold has now flowed into London from Switzerland for 3 consecutive months (69 tonnes in May, 80 tonnes in April, and over 40 tonnes in March), most likely to top up gold holdings of the SPDR Gold Trust, whose inventory has now recorded a latest multi-year high of 915.9 tonnes. This importation of gold into London from Switzerland does seem to indicate that there is not much free float of gold sloshing around the London Gold Market.

The seismic shifts brought about by today’s extraordinary day in the UK will not settle quickly and may only just be the beginnings of further tremors that have been unwittingly released in into the global economic system. Politically, the UK is in a place where it did not think it would be. Cameron is resigning, Boris Johnson is favourite to take his place, and there is pressure on the opposition Labour leader Corbyn to resign with accusations that he is out of touch with the electorate. In the financial markets, the major banks are in deep trouble and dollar funding is an issue, even according to the central bank interventionalists. In such a climate of evaporating paper wealth, gold, and to an extent silver, are stepping forward to play their traditional roles of war chest assets, assets with real intrinsic value.

Infographic: London Gold Market

This London Gold Market infographic guides you through the secretive OTC wholesale gold market in London. The London Gold Market is the largest gold market in the world and the volumes traded are staggering.

The London Market serves as a price discovery market for the worldwide gold spot price and is home to the London Bullion Market Association (LBMA).

London is also a hub for gold storage with 6,500 tonnes of gold stored in gold vaults around London.

In this infographic you will learn about the importance of the London Gold Market considering

  • Trading Volumes
  • Fractionally Reserved Paper Gold Trading
  • Price Discovery for the Gold Price
  • Gold Vaults
  • Secrecy in the London Gold Market

You can learn more about the London Gold Market at the BullionStar Gold University

London Gold Market Infographic

Infographic London Gold Market

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Gold Vault Profiles

Many topics in the world of gold are opaque and secretive, none more so than the famed gold vaults of the world’s major central banks and their bullion banking counterparts. BullionStar Gold University is now bringing transparency to this intriguing yet under-reported area by profiling the largest and most important of these gold vaults.

According to the vault owners and the information that they divulge, these gold vaults officially store over 16,500 tonnes of gold, which is approximately half of all reported central bank gold reserve holdings. That’s also nearly 10% of all the gold ever mined in the world. This in itself makes knowledge of these vaults important.

From the labyrinthine Bank of England gold vaults storing nearly 5,000 tonnes of gold in custody for over 70 central bank customers, to the Federal Reserve Bank of New York's subterranean gold vaults housing nearly 6,000 tonnes of gold on behalf of 36 foreign central banks and the US Treasury, this BullionStar series brings together information about these vaults that has never before been documented in one place.

Where are the vaults located? Who are their customers? What type of gold bars are stored there? How are the vaults laid out? When were they constructed? These are just some of the questions covered in BullionStar’s Gold Vault series. Only on rare occasions have reporters, camera crews or other observers been allowed to access these vaults and document their layouts and contents. We have included a media section in the profiles where possible to point you to these sources.

Witnessing such large quantities of gold bars stored in one single place seems to create a profound and similar impact on the observers regardless of which vault they have visited.

“I’m speechless when exploring the Sacristy, , … you don’t see this every day” - Alberto Angel, reporter RAI, Italy

It’s quite extraordinary” - Professor Martyn Poliakoff, visiting the Bank of England vaults

you never get sick of the gold… it even puts a smile on our faces when we’re down there working with it” - Fed Vault Custodian, New York

from a purely human perspective, we could see with our own eyes a quantity of precious metal that goes beyond an ordinary perception … I must say that it arouses feelings that are difficult to explain” -   Senator Giuseppe Vacciano, Italy

Why the observers have these powerful reactions to seeing such vast quantities of gold, we can’t say for sure, perhaps it’s because gold is money par excellence and the ultimate store of wealth, and that being close to this powerful and aesthetically pleasing element invokes a timeless sense of respect and wonder.

The BullionStar Gold University vault profiles series also covers the deep underground Banque de France gold vaults in Paris. Known as ‘La Souterraine’, home to over 90% of France’s 2,435 tonnes of gold, the Paris vaults also store gold bars on behalf of the Bundesbank and the International Monetary Fund. The series also visits the Banca d’Italia’s gold vaults, "La Sacrestia Oro", under the Banca d'Italia's Palazzo Koch headquarters in Rome which hold 1,200 tonnes, or approximately half of Italy’s gold.

BullionStar Gold University also profiles the commercial gold vaults backing the London Gold Market, the London gold clearing system and the London Bullion Market Association (LBMA) system. These vaults also house the gold behind the largest Gold ETFs in the world. Learn about JP Morgan’s gold vault deep underneath a JP Morgan Chase building off Fleet Street in the City of London, as well as the massive HSBC gold vault that at one stage stored over 1,300 tonnes of gold on behalf of the SPDR Gold Trust. Is this HSBC vault in the City of London between 2 former HSBC buildings, underneath a road leading to Southwark Bridge? London’s commercial vaults also include the Malca Amit gold vault storage facility adjacent to Heathrow Airport, and the G4S gold vault, built for Deutsche Bank but now said to be leased by Chinese bank ICBC Standard Bank, following Deutsche Bank's withdrawal from the London Gold Market.

A knowledge of where these central bank and commercial vaults are located and their operating details is also critical, since, if there was ever a physical gold shortage or a crisis in the gold market, these central bank and LBMA bullion bank institutions owe it to the global financial community to prove that they are storing the gold they claim to store, in the locations they profess to store it in.