Monetary policy controlled by the Federal Reserve is perhaps one of those that most influence the prices of gold in real time in the market. The International Monetary Fund is the third largest official holder of gold, with more than 2,814 tons. The European Central Bank is just behind India, with 502.1 tons and 32.3% of its total foreign exchange reserves in gold. Russia, Turkey, Ukraine and the Kyrgyz Republic recently started buying gold by the central bank.
Turkey even increased gold reserve requirements for its commercial banks. Major central banks are boosting their balance sheets by purchasing trillions of dollars in paper assets. The World Gold Council said research showed that a 1% change in the money supply, six months earlier, in the United States, Europe, India and Turkey tends to increase the price of gold by 0.9%, 0.5%, 0.7% and 0.05%, respectively. The Council has also said that inflation has still been below several years and that many central banks are more concerned about deflation.
Investors would do well to heed the warning of the king of bonds, Bill Gross, who told global investors to expose themselves to hard assets, whose value will increase with inflation. It's surprising that the Netherlands has so much gold. But it's also important to remember that the country is a former colonial power and has a long history as a very rich nation. Its population of 16.7 million inhabitants ranks 63rd among all nations, while its GDP is the 17th largest in the world.
Like some European countries, the Netherlands did not sell all the gold provided for in the Central Bank's Gold Agreement. Now that the Netherlands is under the same pressure as many other European countries, they are unlikely to be major sellers of gold. You may need that gold to protect yourself if the euro collapses. .
Eastern blocs continue to buy gold on the open market. The only other area they would use to reduce the price of gold would be the futures and options markets, where people would act as counterparties in a cash market, not in a physical gold market. In these cash markets, only 1% of these transactions result in a physical delivery of gold to buyers and, when this occurs, the seller must confirm their intention to deliver. This would indirectly influence traders, but not unless there was such a volume of physical deliveries as to affect the physical gold market focused on London for longer than in the very short term.
But yes, as we saw last Friday, the futures and options market does affect the price of gold, so we will accept this downward pressure as a major factor influencing the price of gold in the short term. After all, the price of gold is the result of physical supply versus physical demand. This has to be mitigated by supply and demand at that particular time. For example, in Asian markets, local buyers express their ideas in their market, outside the influence of New York and, for a time, London.
Yes, there are referees who will make a living from disparities between markets and, therefore, will equalize the price differences presented by time zones. Nor will big players pursue small price disparities between markets just to equalize prices. They will allow prices to wander in the short term even though they want gold. They will operate in markets where they can obtain good volumes.
This is best seen in London, in the two London Fixes. Why? Because the five bullion banks that set prices at which all transactions with a certain price setting will be negotiated. They sit in a room connected by telephone to their offices, which in turn are connected to their active customers, keeping them informed of the prices being considered in that Fix. The volumes traded change with each price change, causing trading banks to “liquidate” the volumes that will be traded at a certain price.
Once supply and demand are balanced in Fix, the price is set and published. This ensures that the highest volume is traded at a price that everyone considers to be a faithful reflection of the demand and supply of physical gold that morning or afternoon. So, the solution is where the price of gold is controlled from. Who are the players they control? In short, it's those buyers or sellers at that particular time that are the most important at that time.
A day later, these controllers may have taken a step back and handed control over to someone else. In general, and from a longer-term perspective, we can see who are the most important players and they differ substantially in their actions. Where will these buyers take the price of gold and when?. Central banks hold paper and gold coins in reserve.
As central banks diversify their monetary reserves from the paper currencies they have accumulated to becoming gold, the price of gold tends to rise. Many of the world's nations have reserves composed mainly of gold. The wholesale gold trade landscape is quite complex and constantly evolving. The three most important gold trading centers are the London OTC market, the US futures market.
UU. and the Shanghai Gold Exchange (SGE). These markets represent more than 90% of global trading volumes and are complemented by smaller secondary market centers around the world (both OTC and publicly traded). Rothschild %26 Sons announced that it planned to withdraw from gold trading and gold fixing in London.
Germany is supposed to sell gold under the Central Bank's Gold Agreement, but it's likely to keep everything it can as a buffer in case the euro breaks or needs to quickly raise money to rescue the PIIGS. Coinciding with the opening of US markets, since the price of gold was no longer under the control of the Bank of England as a result of the collapse of the London Gold Pool. It is designed to set a price for the settlement of contracts between members of the London bullion market, but informally fixing gold provides a recognized rate that is used as a reference for setting prices for most gold products and derivatives in world markets. Under the terms of the Central Bank's Gold Agreement between major European states, many countries are supposed to sell gold, but they don't.
Therefore, gold prices may be affected by the basic theory of supply and demand; as demand for consumer goods such as jewelry and electronics increases, the cost of gold may increase. The London Gold Fixing (or Gold Fix) is the fixing of the price of gold that is carried out through a specific conference line. Although it is part of the Central Bank's Gold Agreement as a gold seller, you may need a cushion in case the euro faces a complete breakdown. The dollar is likely to drive up the price of gold due to increased demand (because you can buy more gold when the dollar is weaker).
The World Gold Council report shows that low borrowing costs and financial market support stimulate gold accumulation. Due to war emergencies and government controls, gold mining in London was suspended between 1939 and 1954, when the London gold market closed. .