Weekly Wrap Up: A Week of Change in the Gold Market

This week has been an eventful one, to say the least. The Federal Reserve continues to buy everything in sight as its balance sheet has expanded to $6.3 trillion. The Federal Reserve has now purchased 15% of the United States treasury, leaving everyone wondering how much they will own when this is all over.

However, in the gold space, there were some pretty significant headlines as central banks continue on its course of abundant money printing.

1) India to issue sovereign gold bonds starting April 20 

The government will issue Sovereign Gold Bonds (SGBs) in six tranches beginning April 20, the Reserve Bank of India said on Monday. Sovereign Gold Bond 2020-21 will be issued by Reserve Bank India on behalf of the Government of India.

 “Government of India, in consultation with the Reserve Bank of India, has decided to issue Sovereign Gold Bonds. The Sovereign Gold Bonds will be issued in six tranches from April 2020 to September 2020…,” the RBI said.

 The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram and the tenor of the SGB will be eight years with exit option after fifth year to be exercised on the interest payment dates.

“The Bonds will be restricted for sale to resident individuals, HUFs, Trusts, Universities and Charitable Institutions,” the central bank said.

The minimum permissible investment will be 1 gram of gold and the maximum limit of subscription shall be 4 KG for individual, 4 Kg for HUF and 20 Kg for trusts and similar entities per fiscal (April-March).

This sends a direct signal to the marketplace that gold is slowly being reintroduced to monetary policy, with India being the first country to announce a sovereign gold bond. 

2) Turkish treasury issues a gold bond 

Turkey will issue a gold-backed bond and sukuk for corporate investors, especially for retirement and investment funds, with a settlement date of Sept. 20, the Treasury announced on Tuesday. 

Bonds will have a 6-month interest or rent rate of 1%, the TreasuryTreasury said, adding that they will have a two-year maturity.

3) Central Banks Add More Gold To Their Reserves While Dumping U.S Treasuries

Central Banks globally added another 36 tons of gold to their reserves in February, which was about 33% higher than January’s totals. This year, central banks have bought a total of 64.5 tons of gold. 

Februarys noteworthy buyers were: 

  • Turkey = 24.8t
  • Russia = 10.9t
  • Kazakhstan = 1.8t
  • Qatar = 1.6t

It interesting to note, as gold demand continues to be strong from central banks around the world, the same thing can’t be said for U.S treasuries. During the month of March, there was a complete fire sale of Treasuries by foreign governments and central banks. Foreign holders of treasuries dumped more than $100 billion in three weeks to March 25, which represents the biggest monthly drop on record.

 

 

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