Mysterious Gold Buyers Cause Rise in Demand for Gold

According to the demand report for the third quarter, released recently by the World Gold Council (WGC), central bank buying of gold has reached almost 150 tons. This is far more than was estimated by analysts. However, the buyers were not listed.

An analysis of International Monetary Fund’s (IMF) data and a study of the delays in data reporting along with prior patterns of buying indicate that the most obvious candidates were India and China.

Trends over the Last Two Years

Purchasers of gold are usually countries that have external surpluses in large amounts. They also have extensive reserves of foreign exchange. Based on global economics, countries which currently fulfill these requirements are either in Asia or Latin America.

According to calculations - based on information gathered from the IMF - central banks have purchased a net worth of 208.9 tons of gold in 2011. The data has reported buyers for a net total of 20.0 tons in the third quarter alone, leading to a discrepancy of approximately 130 tons of gold.

The WGC refused to reveal the names of the buyers, citing confidentiality reasons, which only added to the mystery behind the report. In 2011 so far, the biggest gold buyers have been Russia, South Korea, Thailand and Mexico. Bolivia and Colombia are also buyers, though on a smaller scale.

Possible Gold Buyers

China is the country with the largest currency reserves ($3.2 trillion). However, Beijing has stated that the gold market is too illiquid and small scale to be considered suitable for increasing the bullion shares in its vast portfolio of reserves. Gold is currently at only 1.6%. In addition to this, China is the world’s largest gold producer and has hinted that it will purchase its gold domestically.

In 2009, India reported a rise in its reserves after purchasing 200 tons from the IMF, to 557.7 tons. India’s foreign exchange reserves are valued at $314,665 billion, 9% of which is in gold.

Indonesia owns 73.093 tons of gold and has foreign exchange reserves of approximately $113 billion. South Korea has $310.98 billion in foreign reserves and has recently purchased 25 tons of gold. Saudi Arabia dominates Africa and the Middle East with 322.9 tons and $500 billion in foreign currency reserves.