ETFs Still Leading the Precious Metals Charge

ETFs continue to dominate the Precious Metals arena. ETF holdings up once again overnight, standing at 56.2 million ounces; far from the all-time high of 85 million ounces reported on Jan 1st of 2013. Nonetheless, buying continues to increase from the small retail investor to large hedge funds. Recently the bulk of the buying seems to be from Far East investors.

An article on page C1 in today’s Wall Street Journal reporting that on Tuesday, for the first time, the Japanese government issued benchmark 10-year bonds with negative yields. This means that the government is charging investors for lending it money. No wonder we have seen an increase of physical gold buying In that country.

Another story of interest hitting the tape this morning is Moody downgrading its outlook on the Chinese government’s credit rating from stable to negative citing the country’s rising debt and falling foreign exchange reserves.

On our shores, the Federal Reserve governors continue to send out mixed signals every time they share their opinions. This policy continues to create a smoke screen for the investor on the possibility of future rate decisions. Nonetheless gold is up 15 percent in 2016 and central bank consumption of the yellow metal continues. If the price of gold increases in a big way, they can send a nice gift basket to the Federal Reserve committee as a token of appreciation of keeping the price of gold steady as the central banks around the world add to their gold holdings.

The next FED meeting is scheduled March 15th-16th and the majority of those who follow the FED do not expect any changes to the FED Fund rate. How could they raise rates as the rest of the world is heading toward negative interest rates? In the past year, Finland and Italy have joined the countries issuing bonds with negative interest rates. Adopting these policies increases demand for gold and, as soon as the FED is forced to head in that direction, I expect the physical demand for gold in this country will take off in as big a way.