CENTRAL BANK GOLD PURCHASES SOAR
From the Wall Street Journal
LONDON — Total central-bank gold purchases in the third quarter were more than double the level reported just one quarter earlier, and came in almost seven times higher than the year-earlier period as countries continued to diversify their official reserves, according to World Gold Council data Thursday that surprised gold traders and analysts.
At 148.4 metric tons, gold buying among central banks came in at its highest quarterly level since the sector became a net buyer of the precious metal in the second quarter of 2009, data in the organization’s quarterly Gold Demand Trends report show.
The official sector—central banks and other official institutions—by comparison had bought 66.5 tons of gold in the second quarter, and 22.6 tons in the third quarter of 2010.
“Central-bank buying was a highlight of the quarter. Statistics this year have been remarkable,” Marcus Grubb, managing director of investment at the gold council, said in an interview.
The data came as a shock to traders and analysts, as it included a significant number of purchases that haven’t yet been reported publicly, and whose buyers couldn’t be identified due to confidentiality restrictions, the council said.
“This large number is a surprise,” said UBS analyst Edel Tully, who said her own tally of net purchases reported through the WGC and International Monetary Fund totaled just 20.2 tons for the quarter. “This information is very bullish. And no doubt the market will be busy speculating on the identity of such buyers.”
The WGC—an industry association representing 22 gold miners, including Barrick Gold Corp., Newmont Mining Corp. and AngloGold Ashanti Ltd.—attributed the acceleration in central-bank demand to concerns over the creditworthiness of Western governments, as sovereign-debt troubles remained squarely in the global economic and political spotlight.
“While one can account for some of the purchases—from Thailand, Bolivia, Russia etcetera—there is an unaccounted amount out there. A clue probably lies in the fact that a lot of buying has been from central banks that have been in surplus, [in regions] like Asia, Central Asian and Latin America,” said Mr. Grubb, who expects the unknown buyers will likely be made public in the coming months.
Central-bank purchases by developing countries have been growing in recent years as those nations diversify holdings, partly because of growing foreign-exchange reserves through export-led growth but also, more recently, as a reaction to the sovereign-debt crises affecting traditional reserve currencies like the U.S. dollar. Before 2009, however, central banks had been net sellers of gold bullion for around two decades.
The central bank of Russia, a regular buyer from its domestic market, continued its long-term program of gold accumulation during the three-month period. Its third-quarter gold purchases amounted to 15 tons, taking its total holdings to around 852 tons, the WGC said.
Still, the association said while a number of banks like Russia had continued their well-publicized programs of gold buying, “a slew of new entrants emerged wishing to bolster their gold holdings in order to diversify their reserves.”
In Bolivia, gold reserves rose by 14 tons, while Thailand also stepped up its buying, adding 25 tons to its holdings over the course of the quarter.
Dr. Pinna says:
If you were the head of a Central Bank and were entrusted with keeping your banking system stable during periods of economic stress which currency would you buy?
The U.S. Dollar? The Euro? The Pound Sterling? All these currencies have shown that they are weak because they are tied to human political systems. All people are recognizing that governments are tools of pressure groups and cannot be trusted.
If you cannot trust governments, how can you trust that government’s currency. Gold is the only answer. It is universally accepted. It has a world price determined by seven billion people. It can be safely stored. It never changes. Aren’t those qualities the qualities needed by a reserve currency?
Central bankers are seeing the light. Are you?
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