Central banks hungry for gold buy enough for 75 Dreamliners

Central banks purchased enough gold in 2014 to buy 75 Boeing Co. Dreamliners. 

PHOTO: BLOOMBERG

13 Feb7:55 AM

[LONDON] Central banks purchased enough gold in 2014 to buy 75 Boeing Co. Dreamliners.

Governments added 477.2 metric tons to their reserves, the second-biggest increase in 50 years and 17 per cent more than a year earlier, the World Gold Council said in a report Thursday.

Based on the average price of gold in 2014, central banks probably paid about US$19.4 billion. A Boeing 787-9 has a US$257.1 million retail price, according to the company's website.

Central banks have added to gold reserves for the past five years, a reversal from two decades of selling since the late 1980s.

Purchases will be at least 400 tons this year, according to estimates from the London-based council, which represents 17 gold producers. Total demand for gold fell last year as Chinese consumers bought less jewelry, bars and coins.

"There is a lot of scope for emerging market central banks to expand their holdings as these are still significantly underweight," Alistair Hewitt, head of market intelligence at the council, in a phone interview on Wednesday. "Demand from this sector is going to remain robust."

Russia was the biggest buyer of gold, while Ukraine sold the most as fighters from both countries clashed along Ukraine's eastern border.

RUSSIA'S HOARD

Russia's gold stockpile has grown to the biggest since at least 1993 after purchases topped 173 tons last year.

The country has been buying the metal to diversify its foreign reserves and solve problems related to ruble liquidity, central bank Governor Elvira Nabiullina said in an interview with Bloomberg Television in Moscow this month.

Gold accounts for about 12 per cent of its total foreign reserves. That's still less than the US and Germany, the biggest holders, with the metal making up about 70 per cent of reserves.

Ukraine sold almost 19 tons of gold, while Kazakhstan and Iraq both bought about 48 tons, according to the council. Azerbaijan purchased about 10 tons, the report showed.

Gold for immediate delivery added 0.3 per cent to US$1,222.99 an ounce as of 12.16pm in London. The metal has climbed 3.3 per cent this year.

Countries have bought 1,964 tons of gold over the past five years, equal to more than seven months of mine output, as they sought an alternative to currencies, according to the gold council report.

BLOOMBERG

      

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Gold holds gain as weaker retail sales hurt US growth outlook

Gold held gains after rebounding from the lowest level in a month as falling retail sales in the US cast doubt on the pace of growth in the world's largest economy, boosting demand for a haven. Silver advanced. 

PHOTO: REUTERS

13 Feb1:17 PM

[NEW YORK] Gold held gains after rebounding from the lowest level in a month as falling retail sales in the US cast doubt on the pace of growth in the world's largest economy, boosting demand for a haven. Silver advanced.

Bullion for immediate delivery traded at US$1,224.34 (S$1658) an ounce at 8.53 am in Singapore from US$1,221.98 on Thursday, when it rebounded from $1,215.30, the lowest level since Jan 9, according to Bloomberg generic pricing. The metal is still set for a third week of losses, the longest streak since September.

Gold added 3.4 per cent this year as the Greek debt crisis and more stimulus in Europe and Asia offset the impact of a stronger dollar and prospects for higher US rates. Talks between Greek negotiators and euro-area officials will resume in Brussels on Friday after ministers failed on Thursday to hammer out terms for an extension of the country's bailout agreement. While the dollar fell by the most in nearly five months after the retail sales figures, it's still near a 10-year high.

"Weaker-than-expected retail sales data from the US lifted the bullion's appeal as the dollar softened," Australia and New Zealand Banking Group wrote in a note. On Greece, investors "will be looking for more concrete signs that progress is being made," the bank said.

The Bloomberg Dollar Spot Index was at 1,163.66 from 1,163.11 on Thursday, when it fell 1 per cent. The index closed at 1,174.87 on Wednesday, highest since at least December 2004. Lower fuel prices and higher wages failed to spur an uptick in US retail sales, which fell for a second month in January.

Gold for April delivery increased 0.3 per cent to US$1,224.40 an ounce on the Comex in New York. Silver for immediate delivery gained 0.3 per cent to US$16.9097 an ounce, heading for a weekly climb. Spot platinum was 0.4 per cent higher at US$1,203.13 an ounce. Palladium added 0.2 per cent to US$776.06 an ounce.

BLOOMBERG

      

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US real estate ETF rally faces test with rate rise

Investors who have been piling into real estate exchange-traded funds over the past year could be in for a rocky ride if the Federal Reserve raises interest rates later this year as expected. 

PHOTO: AFP

2 Feb9:03 PM

[NEW YORK] Investors who have been piling into real estate exchange-traded funds over the past year could be in for a rocky ride if the Federal Reserve raises interest rates later this year as expected.

The record US$10.7 billion in new money invested last year in ETFs that focus on real estate investment trusts (REITs), coupled with the US$1.2 billion added so far this year, have made these funds pricey: After several of the biggest ETFs returned north of 30 per cent last year, the category has an average price-to-earnings ratio of 36.9, according to data from ETF.com.

One popular fund, the iShares Cohen and Steers REIT ETF , for example, has a price-to-earnings ratio of 56.5, more than triple the 17 P/E ratio on the Standard & Poor's 500 stock index.

That could make those funds vulnerable to an interest rate hike because rising rates could spur investors to sell REITs in favor of other yield-generating investments like bonds, to which Reits are often viewed as an alternative.

Vanguard declined to comment on REIT funds in particular, while BlackRock did not immediately comment.

Holders of REITs, which invest in mortgages or properties such as shopping malls and office buildings, have benefited in a low-interest rate environment. The Vanguard Reit ETF yields 3.4 per cent, compared to the broader market SPDR S&P 500 ETF's yield of 1.9 per cent, and the 10-Year Treasury, which has a current yield of 1.7 per cent.

But with the Federal Reserve indicating on Wednesday that it remains on track to raise interest rates this year, Reit funds are likely to take a hit.

"The US real estate market is still recovering, and that's why I like them at the moment because investing in Reits is like investing in US real estate," said John Shearman of Sausalito, California-based IV Lions LLC, who invests in the Vanguard Reit ETF for his clients.

Mr Shearman said he is willing to ride out the bumpy road that REITs may take with rising rates because he is more concerned with their performance in the long term.

"All I care about is, in 10 to 20 years' time, what the investment in VNQ will have done. I think it will have done very nicely," he said.

It may be that some of those continuing to pile into the Reit funds are betting on the opposite scenario: With a weak Europe and a strong dollar, some analysts expect the Fed to continue delaying higher rates.

Coupled with strong fundamentals in some portions of the real estate market, that could insulate Reit investors for another year. Hotel Reits, for example, are favored by analysts at Baird who see high occupancy levels driving bottom-line growth for Reits.

Reits will also vary in their response to rising rates. Properties with shorter leases, such as self-storage facilities, can adapt their operations more quickly to an interest rate hike, said Morningstar analyst Bob Goldsborough.

Among the biggest real estate ETFs, the US$30 billion Vanguard Reit ETF, which has won US$482 million in new assets so far this year, is already up 8.7 per cent in the first 18 trading days of this year, the iShares Cohen & Steers Realty Majors Index Fund is up 9.3 per cent, and the SPDR Dow Jones Reit ETF is up 8.7 per cent over the same period.

The funds returned 30.3 per cent, 34 per cent and 31.7 per cent, respectively, in 2014, far outperforming the broader S&P 500, which rose 13.7 per cent.

REUTERS

      

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Hollande, Merkel say more sanctions on Russia possible if Ukraine deal isn't respected

PUBLISHED ON FEB 13, 2015 8:16 AM

Germany's Chancellor Angela Merkel (right) and France's President Francois Hollande (left) walk as they attend a peace summit to resolve the Ukrainian crisis in Minsk on Feb 12, 2015. -- PHOTO: REUTERS

BRUSSELS (Reuters/AFP) - French President Francois Hollande said on Thursday that more European Union sanctions on Russia would be on the cards if the Ukraine ceasefire deal just brokered by France and Germany was not respected.

If the Minsk deal is not respected "we would get back into the procedure that you know... where sanctions would be added to the sanctions that are already in place", he indicated. If the ceasefire is fully respected, however, sanctions would progressively be lifted, he said. "It is clear that if everything falls into place, then measures will be taken at the European level to ease sanctions" imposed against Russia over its intervention in Ukraine, Mr Hollande said. "France would be part of such a process but for the moment we are not there yet."

He added that conditions were "still not right" for France to hand over the Mistral warships Moscow has ordered to Russia. Mr Hollande suspended the 1.2 billion euro (S$1.85 billion) sale last year as the Ukraine crisis deepened, fearing it would boost Russia's military capabilities and put Paris in hot water with its allies. France delayed delivery of the first vessel due last November and then postponed it "until further notice". Moscow promptly warned it would demand costly compensation if the sale was cancelled outright and the deal has been in limbo ever since.

German Chancellor Angela Merkel also said after an EU summit on Thursday that the EU may impose further sanctions if the ceasefire deal, sealed in Minsk between Ukraine and Russian-backed rebels, is not fully implemented.

India overtakes China to become top global gold consumer

PUBLISHED ON FEB 13, 2015 12:32 AM

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A woman looks at a gold bangle inside a jewellery showroom at a market in Mumbai Jan 15, 2015. China lost its place to India as the world's biggest gold consumer in 2014, sector data showed Thursday, hit by collapsing jewellery demand after one year in the top spot. -- PHOTO: REUTERS

LONDON (AFP) - China lost its place to India as the world's biggest gold consumer in 2014, sector data showed Thursday, hit by collapsing jewellery demand after one year in the top spot.

Indian gold demand sank 14 per cent to 842.7 tonnes last year from 2013, but Chinese demand slumped 38 per cent to 814 tonnes, the World Gold Council (WGC) said in a report.

Overall gold demand meanwhile dropped 4 per cent last year to 3,924 tonnes compared with a record amount in 2013, pushed lower as Chinese jewellery demand tumbled by a third.

That marked the lowest overall level in five years and was also the third successive annual decline for the precious metal, whose two main drivers are jewellery and investment buying.

World jewellery demand sank 10 per cent to 2,153 tonnes last year, while China registered a 33 per cent slump to 814 tonnes, according to the council representing leading gold producers.

However, India experienced an exceptional year for jewellery.

"India... had its strongest year for jewellery demand since the WGC's records began in 1995, up 8 per cent on a year ago to 662 tonnes," the organisation added.

"This was driven by wedding and festival buying despite the presence of government restrictions on gold imports for most of the year."

India had imposed gold import curbs in 2013 in order to avert a trade deficit crisis that pushed the rupee to record lows. However, it eased those restrictions last November.

"2014 was a year of stabilisation and innovation in the gold market, with annual gold demand down by just 4 per cent after the record-breaking level of buying seen in 2013," added Marcus Grubb, the group's managing director of investment strategy.

"It was a standout year for Indian jewellery, despite government restrictions on gold imports, reinforcing the nation's affinity with gold.

"Meanwhile, Chinese gold demand returned to those last seen in 2011/2012 as consumers and investors took time to digest the substantial volumes accumulated in 2013."

The London-based WGC added that the year ended strongly in the fourth quarter, boosted by jewellery demand and central bank buying.

Central banks bought 477 tonnes of gold last year, up 17 per cent from 409 tonnes in 2013, according to the WGC. That marked the fifth consecutive year where central banks were net purchasers of gold.