Gold Easing on Euro, Watch for a Buy

Last week, the Bank of Russia began buying domestic gold for the first time ever, according to inside sources cited by Russia's information agency Interfax.

The Central Bank previously purchased its gold on the interbank market.

As always, God — as well as the devil — is in the details.

The people at the Russian central bank know very well what they are doing. They have already the third-largest reserves in the world after China with $1.57 trillion and Japan with US$1 trillion, so why should they not diversify a bit and buy some from their domestically produced gold?

That way, their purchasing power remains at home.

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Capital inflows are rising. This fact has prompted the bank to up reserves, buying on the commercial market. Russian gold and foreign exchange reserves are estimated to have reached $519 billion, according to Reuters.

With oil strong, Russia's currency, the ruble, will face appreciation pressure, but Russia is reluctant to allow it to climb against the basket (45 percent euro/55 percent U.S. dollar), despite inflation.

Deteriorating inflation outlook, too, may prompt more monetary tightening, lifting money market and yield rates. The bank might allow the ruble to move more against the basket

Now, after the euro has started to reverse course, I think that under "normal" circumstances and for purely technical reasons, gold should further move lower, too.

The classical summer price easing will also help. Gold could easily move further down to the $800 — a first support level — to even the $600 zone, which should become a new interesting "buying" zone.

Keep tuned if you are interested in gold. Just be patient, and have your cash ready.

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