Fool's Gold Report: Central-Bank Buying Fails to Spur Big Gold Gains; Platinum-Group Metals Drop

Despite a big buy from Iraq's central bank, gold could only muster minimal gains today. Find out why.

Mar 25, 2014 at 5:44PM
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Gold is very much a market of supply and demand, and ordinarily, news of the biggest purchase by a national central bank in three years would be enough to make gold bulls very happy indeed. Yet on Tuesday, gold markets largely shrugged off the news, posting only a minimal bounce from the yellow metal's substantial drop over the past several days. In the futures markets, April gold managed only a $0.20 per ounce gain to $1,311.40, while silver actually lost more ground, falling almost $0.09 per ounce to fall to $19.98. ETFs SPDR Gold Shares (NYSEMKT:GLD) and iShares Silver (NYSEMKT:SLV) were both largely unchanged, and even though the Market Vectors Gold Miners ETF (NYSEMKT:GDX) picked up about two-thirds of a percent, that paled in comparison to its losses yesterday. Platinum group metals reversed their recent strength, falling modestly on the day.

Metal

Today's Spot Price and Change From Previous Day

Gold

$1,312, up $2

Silver

$20.01, up $0.07

Platinum

$1,415, down $9

Palladium

$785, down $8

Source: Kitco. As of 4 p.m. EDT.

Gold And Silver

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Why gold investors don't care about Iraq
The Central Bank of Iraq announced that it had bought 36 metric tons of gold, spending about $1.56 billion to make the biggest purchase in the gold market since Mexico's 78.5-ton purchase three years ago, according to Bloomberg. The move more than doubled Iraq's central-bank gold reserves, with the bank saying that it had made the purchase in order to help boost the value of the Iraqi dinar currency against other foreign currencies. Even after the big purchase, though, gold represents only around 4% of Iraq's total reserves.

Yet the problem that investors have with Iraq's move is that it only represents one source of demand for gold. Exchange-traded investment vehicles have had a huge influence on overall investor demand for bullion, and last month, their assets under management reached their lowest levels in four and a half years. Even though lower prices last year spurred more interest in gold jewelry and physical coins and bars, the lackluster ETF interest for SPDR Gold Shares -- and to some extent, iShares Silver and other non-gold precious-metals ETFs -- has weighed on a larger-scale recovery. Without investors coming back into the market in response to central-bank buying, central banks by themselves won't be able to push gold prices higher without much more extensive purchase activity than we've seen so far.

Meanwhile, on the mining front, gold miners remained close to unchanged, but silver-related companies generally gained ground. Silver Wheaton (NYSE:SLW) gained almost 1% as the company continues to look for opportunities in the silver and gold markets. With many mining companies hurting for capital, Silver Wheaton has immense bargaining power in the current environment, and that gives it the potential for bigger gains when the tide turns on precious metals. For traditional miners, on the other hand, a recovery in prices is essential to produce a much-needed reversal of recent losses and to resume their recovery.

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