Gold at new record high after Saudi reserves double
By Javier Blas in London
Copyright The Financial Times Limited 2010
Published: June 20 2010 21:06 | Last updated: June 21 2010 10:39
http://www.ft.com/cms/s/0/e97c15bc-7ca1-11df-8b74-00144feabdc0.html
Gold prices hit on Monday a fresh record high of almost $1,265 a troy ounce following the revelation that Saudi Arabia, the world’s largest oil exporter, is sitting on more than twice as much gold as previously thought, according to new estimates.
The disclosure points to the revival of bullion as part of emerging economies’ official reserves and comes as investors pour money into the yellow metal.
The weakness of the dollar following China’s decision to make the yuan more flexible, gave bullion further momentum, analysts said. A stronger yuan makes the cost of gold for Chinese buyer cheaper, potentially increasing demand. China is the world’s second largest gold consumer, after India. It is also the largest producer.
In early trade in London, spot gold surged to $1,264.9 an ounce, up 0.7 per cent from Friday’s last quote in New York. It later pared gains to trade at $1,258. Adjusted for inflation, however, bullion is still below its all-time high of more than $2,300 set in 1980.
Traders and bankers said hedge funds remain extremely bullish on gold because they believe that, sooner or later, the central bank’s recent massive monetary expansion would translate into inflation. Some hedge funds have internal forecasts above $1,300-$1,500 for the end of the year, bankers said.
The changes in Riyadh’s reserves were revealed by the World Gold Council, the industry-backed body which regularly tracks official bullion holdings. According to the WGC, the Saudi Arabian Monetary Agency, the central bank, has gold reserves of 322.9 tonnes, more than double the 143 tonnes it had previously reported.
The Saudi central bank, which holds the world’s fourth-largest holder of foreign exchange reserves, said in a footnote of its latest quarterly report that “gold data have been modified from first quarter 2008 as a result of the adjustment of the Sama’s gold accounts”. Sama did not respond on Sunday to calls seeking further comment.
Analysts said the rise in official gold holdings probably represented an accounting shift rather than fresh purchases. One possibility is that a large fraction of the country’s gold was not considered until now part of the official reserves.
But without an official explanation, analysts were keeping options open. At current prices, the extra gold in Saudi Arabia’s official reserves amounts to $7bn.
The WGC revelation about Riyadh’s gold holdings comes just a year after China surprised the bullion market when it revealed its gold holdings were more than 1,000 tonnes, almost double what it had reported for years.
Edel Tully, precious metal strategist at UBS in London, said on Monday that the updated reserve statistics from the WGC adds credence to her “belief that the official sector will be a net buyer of gold this year”. Central banks have being net sellers of gold over the last two decades due to heavy disposals in Europe.
The trend has now changed, however. India bought 200 tonnes of gold from the International Monetary Fund earlier this year, while Russia and others are purchasing bullion from domestic miners on a regular basis, official data show. European central banks, after more than a decade of hefty disposals, have all but stopped selling.
Riyadh is now the 16th largest gold holder, ahead of countries such as the UK and Spain. The US is the world’s largest bullion holder with 8,133.5 tonnes.
Additional reporting by Abeer Allam in Riyadh
ECB seeks tougher eurozone rules
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2010
Published: June 20 2010 16:43 | Last updated: June 20 2010 16:43
http://www.ft.com/cms/s/0/097c9da8-7c81-11df-8b74-00144feabdc0.html
Jean-Claude Trichet, European Central Bank president, is expected on Monday to throw down the gauntlet to the eurozone’s political leaders by setting out extensive proposals for preventing future financial crises in the 16-country region.
Mr Trichet’s comments in the European parliament will highlight the extent of the central bank’s involvement in steps to restore confidence in Europe’s 11-year-old monetary union.
The ECB wants to rule out any expulsion from the eurozone, as even admitting the possibility could undermine its stability. Eurozone finance ministers would become “the guardian of fiscal sustainability”, with governments’ tax and spending decisions policed by an independent agency.
There would also be more penalties for fiscal miscreants – and a “traffic light” system of intensifying surveillance for countries losing competitiveness.
“It is a strong, agenda-setting gesture,” said Jean Pisani-Ferry director of Bruegel, the Brussels-based think-tank. “It shows how strong the ECB has emerged from the crisis compared with the [European] Commission and the eurogroup [of eurozone finance ministers].”
In a document released last week, the ECB suggested a crisis management institution able to buy eurozone government bonds “to quickly address disruptions in sovereign bond markets”.
That would mean the ECB could avoid a repeat of the criticism it faced in Germany last month after its decision to fund bond purchases to calm the then rapidly escalating eurozone debt crisis. Axel Weber, the Bundesbank president, warned of inflation risks.
The ECB’s proposals make no reference to the possibility of a debt rescheduling by a eurozone country – an omission apparently aimed at avoiding such a move being seen as an easy way out for a government that had lost control of its finances.
Mr Trichet’s comments will fuel the debate on Europe’s future economic governance which will culminate in October, when Herman Van Rompuy, the European Union president, presents his final report on the subject to EU leaders. Germany favours an emphasis on government self-responsibility. But France, which backs steps that beef up co-operation across the eurozone, might worry about any attempt by the ECB to relinquish its crisis-fighting responsibilities. The ECB has sidestepped the question of whether its ideas would be feasible without changing EU treaties.
Last week’s ECB paper – expected to form the basis for Mr Trichet’s comments on Monday – favoured “a more ambitious approach” to the future governance of the eurozone than proposed by the Commission. The eurozone’s future governance should be “based on a genuine sense of co-responsibility” of all eurozone countries. Its ideas could be expanded “selectively” to other EU countries, including the UK.
According to the paper, sanctions for countries flouting fiscal rules could include cuts in EU aid, the suspension of voting rights or the dispatching of outside experts to police an offending country.
Mr Trichet has called previously for a “quantum leap” in the governance of the eurozone.
Renminbi move catches critics off-guard
By Alan Beattie in Washington
Copyright The Financial Times Limited 2010
Published: June 20 2010 20:26 | Last updated: June 20 2010 20:26
http://www.ft.com/cms/s/0/d396b2f0-7c9e-11df-8b74-00144feabdc0.html
What now for the most prominent critics of China’s fixed exchange rate? The timing of Beijing’s currency announcement on Saturday appeared to take much of Washington by surprise.
For some, it will be a great relief. At least in the near term it relieves pressure on the administration of President Barack Obama, which had been pushed into an increasingly uncomfortable position. But for the advocates of tough action against Beijing in the US Congress, there will be the difficult task of assessing whether any action will be enough to satisfy them and whether they can credibly maintain threats of legislation if it does not.
And for the growing share of US businesses for whom the currency issue is a distraction, there remains the challenge of refocusing attention on the difficulties of doing business in the Middle Kingdom.
The administration’s gamble of raising the stakes ahead of the G20 meeting in Toronto at the end of this week has paid off.
China-watchers say that Tim Geithner, the US Treasury secretary, came perilously close to painting himself into a corner by appearing to egg Congress on rather than counselling caution. Appearing on June 10 in front of an irascible Senate finance committee, Mr Geithner repeatedly warned that China should take account of congressional anger and move before the G20 meeting.
This was a risky strategy, not part of a choreographed move with the Chinese. Mr Geithner admitted to the committee that he did not know when any policy change was likely to happen. In the event, US officials remained unaware of Beijing’s move until very close to the actual announcement.
True, Beijing’s action is unlikely to satisfy its most vociferous critics in Congress, particularly if, as seems likely, it merely enacts a repeat of the gradual appreciation between 2005 and 2008.
Senator Charles Schumer, the New York Democrat who has championed legislation that would restrict Chinese imports, remained sceptical on Sunday. “Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off,” he said after the People’s Bank of China said the exchange rate would remain “basically stable”. “It is only strong legislation that will get the Chinese to change and will stop jobs and wealth from flowing out of America as a result of unfair trade policies.”
Yet China-watchers say the rest of Congress is unlikely to support confrontation in the short term, at least before the summer recess.
“The Democratic [congressional] leadership does not want to clash with the Obama administration on this if at all possible,” said Derek Scissors, research fellow at the conservative Heritage Foundation in Washington. “So movement on currency legislation will be very slow until the fall.”
Sander Levin, chairman of the House of Representatives ways and means committee and a bellwether lawmaker on the issue, warned that the appreciation would have to be more substantive than the previous episode. But he stopped short of promising immediate legislation.
The next real debate in Washington is likely to happen when Congress and the administration reconvene in autumn.
“Congress will keep China sanctions handy and recheck yuan [renminbi] movement, and the pre-election polls, of course, in September,” Mr Scissors said.
Political positioning ahead of November’s midterm elections could re-ignite the debate, particularly since there is a widespread belief in Congress that Mr Schumer is pushing the issue partly to raise his standing ahead of a possible contest to be leader of the Senate.
In truth, many of the business lobbyists wanting action from Beijing are less concerned about the currency than a plethora of other issues they say prevent them from competing fairly in the Chinese market, such as restraints on foreign direct investment and government procurement policies that are skewed towards Chinese concerns. The out-and-out currency lobby tends to be a relatively small subset of American industry, concentrated in sectors such as steel and other manufacturing that compete directly with Chinese imports.
But the wider business community’s concerns are likely to drop down the legislative agenda now that the more immediate issue has seen progress. China’s move may be more symbol than substance but there should be just enough in it to postpone confrontation with the US.
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