StoneX Bullion round-up Monday 27th June 2022
By StoneX Bullion
Gold still steady as silver tests $21
The major news in the precious metal markets this week is not as significant for the gold market as might appear at first sight. This is the statement from the U.K. Government on Sunday 26th June that, during the G7 Summit underway in Germany, there would be an announcement of the suspension of imports onto the UK, United States, Canada, and Japan of newly mined or refined Russian gold, with implementation “shortly”. This seems to be a dramatic statement and given the importance of London and New York to the international gold market, it could theoretically have a serious impact on Russian export earnings (see the numbers below).
The ruble and gold in ruble terms
However, the suspension on 7th March by the LBMA of Good Delivery status for gold and silver from six Russian refineries had already seen a dwindling of Russian shipments of gold into the UK in April. Meanwhile the Russian Government, having previously been encouraging domestic banks to sell gold internationally (and these banks are the usual conduit for Russian gold into the UK), changed its stance earlier this year, recommending that those banks sell gold domestically, and waived VAT on gold bars in an effort to encourage domestic sales. It is also thought that the central bank may be adding to its reserves. The Russian central bank has been a major buyer of gold in recent years, adding 1,653t from end-2009 to early 2020, by which stage holdings were 2,301t, comprising 20% of Russian gold+FX reserves combined, which was the Government’s target. Since then, their reported reserve levels have been broadly steady, but there is market talk that the Bank may have been accumulating gold in recent months. No figures have been published in the IMF’s Russia numbers since January of this year, but it must be a possibility that when the numbers do appear they may show an increase.
To put this into context, 1653t is 45% of one year’s gold my production.
To look at this another way.
Au reported holdings steady at 73.9/74.0M ounces since Q1 2020 when target 20% achieved
Gold Mine Production 331t or 10.64M ounces
Domestic jewellery demand last year, 40t. Electronics demand is not separately reported and so must be well below 8t, basis Metals Focus’ latest figures
Which leaves ~290t or up to nine million ounces theoretically available for export annually, give or take.
At $1,840 that is equivalent to $17Bn.
Meanwhile gold and silver are persisting in their narrow ranges, and the technical picture is deteriorating for both. While gold is moving horizontally, silver’s trend is downwards; as we have discussed before, when gold is meandering and the economic outlook is uncertain, silver will tend to underperform. That said, the $21 level has provided support when under test in mid-June and – so far, at any rate – has helped to prompt a small bounce at the start of this week. Where silver is running into problems, though, is with the structure of the key moving averages. Spot has run into the 10D moving average at $21.54, while the 20D is at $21.67. Furthermore, silver went through the “death cross” at end-May, with the 50D moving below the 200D average. These two are at $22.17 and $23.34 and there is a fair bit of congestion between $21.50 and $22.00.
Gold’s technical picture is marginally better, but still somewhat daunting. At $1,833, spot gold is coinciding with the 10D moving average and testing the 20D at $1,841. The next average is at $1,846 and then the 50D stands at $1,858; here too, there is a band of congestion above spot, between $1,840 and $1,865. Congestion support stands at $1,770 to $1,810.
The Managed Money gold positions on COMEX in the week to 21st June (when gold staged a small bounce from its decline through to 14th June, then reversed at $1,860 two days later) saw a mild reversal, with a small increase in outright longs, from 339t to 352t; and an eight-tonne reduction in gross shorts, from 225t to 197t. The net long thus increased to 155t from 115t, compared with the average net long 254t of over the previous twelve months. In the silver market the pattern was different with contractions on both sides of the market; a very small reduction in longs, from 40,712t to 39,405t, while the expected short-covering tool outright shorts to 32,175t from 39,103t, taking the net long up to 7,230t, the highest since 3rd May and compared with a twelve-month average of 20,9074t. Gold ETP redemptions have resumed, with the major ETPs losing 15t in the past four days.