Emerging-Market Central Banks Continue Additions to their Gold Holdings
In August, central banks of emerging-market countries like Thailand, Bolivia and Russia continued to add to their gold reserves. Many of these banks are purchasing gold in an attempt to diversify their foreign exchange reserves. To counter the government debt woes that adversely affected the euro and the US dollar, officials at central banks started earnest purchase this year.
Gold price volatility
Gold prices have been volatile in August. On 1stAugust, on the New York Mercantile Exchange Comex division, gold futures traded for just $1,607 a troy ounce, while on 23rd the prices reached a record high of $1,909.30 an ounce. According to GFMS, a unit of Thomson Reuters Corp., compared to other assets that are perceived to be safe-haven like the Japanese yen, the U.S Treasurys and German government bonds, central banks seem to be considering investment in gold as intrinsically more sound.
Eija Salavirta, market analyst and a Bank of Finland dealer, in a recent interview stated that the lack of other options for the diversification of their reserves is that main reason for the movement of emerging market central banks as buyers in to the gold market. The importance of diversification was the biggest lesson taught by the recent economic crisis and while many countries are facing exceptional circumstances, the available choices for diversification are not many.
Steep additions made by central banks
According to the latest International Monetary Fund figures, Russian gold reserves now stand at 27.161 million troy ounces as the country’s central bank, a regular domestic market buyer, added 118,000 troy ounces to its reserves in August as per its long term gold accumulation plan. Since the beginning of the year, Russian holdings have increased by over 7%. Thailand also stepped up its gold reserves that stood at 3.2 million ounces in January to 4.4 million ounces with an addition of 300,000 ounces. Bolivian central bank added 225,000 ounces to its reserves, while Greece and Tajikistan made smaller additions to their holdings.
According to GFMS estimates, gold purchases are likely to be lower in the second half (120 tons) than the first half (216 tons). The annual total expected this year is four times the last year’s 77 tons.