Thursday, May 5, 2011

Mexican Central Bank One Of Three To Boost Gold Holdings

The Mexican central bank, the Banco de Mexico, went for gold in a big way earlier this year: the tally is now 100 tonnes bought. Before the beginning of this year, its holding were only 6.9 tonnes. It wasn't the only buyer. The central banks of Russia and Thailand bought 18.8 and 9.3 tonnes respectively in March alone.
Central banks are expanding their gold reserves for the first time in a generation as purchases by billionaire investors including John Paulson contributed to bullion extending its longest winning streak since at least 1920. Countries were also boosting their holdings in 1980 when gold rose to a then-record $850 an ounce, only to fall for most of the next 20 years.

“Central banks have good reason to buy gold,” said Peter Morici, a professor of business at the University of Maryland in College Park and a former economic adviser to the U.S. government. “The dollar is no longer a safe asset for backing currencies. Treasuries are not a sound investment” and budget and debt issues mean central banks should buy gold, he said.
Interestingly, a representative of the Banco de Mexico said that the huge boost in reserves was part of regular policy: just diversification.

If that were the full reason, then the gold-as-diversification theme has spread fairly widely.

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