Central Banks Showing More Trust In Gold

Central banks, or more formally the official sector, have been net buyers of gold since 2009. The latest central bank to buy gold in a big way was the Banco de Mexico, which bought more than 90 tonnes. In an address to the New York Hard Assets Investment Conference of 2011, Jeffrey Nichols said that the People's Bank of China, the central bank of Saudi Arabia and Asian central banks have been adding gold. More significantly, European central banks have stopped selling theirs. The last major sale of any consequence from the official was the IMF sale of 2009.

Net official purchases may have totaled as much as 100 to 200 tons in each of the past two years, even allowing for the IMF's 403-ton gold sales program, which ended some months ago.

Officially published data on central-bank gold transactions are not to be believed as some countries buy gold surreptitiously, choosing not to report purchases, and data on sovereign wealth fund gold investments are, for the most part, unreported. So, it's not possible to get an exact reckoning of net annual purchases or sales by the official sector.

China, for example, announced just about two years ago that its central bank had purchased 454 tons in the prior six years – but chose not to report these purchases until April 2009. Some observers, myself included, believe that China continues to buy significant quantities on a regular basis, possibly 100 tons or more annually, some, if not all, from domestic mine production....

He concludes by saying that, even if the central bank of Portugal has to sell gold because of the Portugese government's debt woes, the gold will find ready buyers.

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.

Mexican Central Bank Jumps On Bandwagon

The Mexican central bank decided to join the gold-buying party by purchasing more than 90 tonnes of the metal for its reserves between January and March of this year.

Mexico now owns 100.15 tonnes of gold, data on the IMF website showed. At the end of January it held 6.84 tonnes.

Mexico's purchase is equivalent to about 3.5% of annual mined output....

It takes Mexico to 33rd place on the list of the world's top gold holders.

As the article indicates, the Mexican government held hardly any gold before that purchase. That's a lot like the Canadian central bank now.


Yes, gold reserves are coming back and the gold market has adjusted. Back in the 1970s, central banks tended to sell gold in the face of its bull market; as a result, they were mocked by goldbugs for being dumb. Now that gold is more normalized, goldbugs are welcoming them to the party.

Central Bank Reserve Managers Expect More Gold Buying This Year

As reported at BullionVault, a survey of 39 central bank reserve managers revealed that gold is generally considered a safe investment.

"Traditionally, government bonds have been termed 'risk-free' assets but the Eurozone situation has made some of us change our understanding of that," said one of the 39 reserve managers who responded....

The survey found that central banks became net buyers of gold bullion in 2010. This marked the end of a 20 year trend of net selling of gold by central banks.

Over 70% of reserve managers surveyed said they expect central banks to remain net buyers of gold, given sovereign debt uncertainties.

In other words, gold is successfully competing with sovereign debts for space in central-bank reserves. Should this trend continue, gold should keep going up. Granted that central bank reserve managers aren't the best investors there are, but they have to pay attention to relative fundamentals.

Central Bank Of Russia Plans To Buy 100 Tons Of Gold This Year

The IMF and developed-economy central banks aren't following suit, but Russia's central bank is part of the emerging-market accumulators that have made all central bank net purchasers of gold in 2009. The Wall Street Journal reports that the central bank plans to buy 100 tonnes of gold per year.

In 2010 Russia's gold reserve increased 23.9% to 790 tons, or 25.4 million Troy ounces.

That increase was well above 100 tonnes; it comps out to about 152.4. If 2011 is like 2010, Russia's central bank may well overfulfill their quota (sorry.)

Central Banks Building Up Gold Reserves

According to a brief report by the Armenia News, several central banks have added to their gold reserves:

The countries having the world’s greatest gold and currency reserves continued building them up last year, Komersant writes.

According to the daily, the first ten countries increased their international reserves by 13.3% - up to U.S. $6,400 billion. China ranks the first, its reserves totaling U.S. $2,850 billion – an 18.7% increase as compared with 2009.

Japan’s reserves totaled U.S. $1,096 billion – an annual increase of 4.5%. Switzerland’s reserves showed the sharpest increase, 25%, up to U.S. $252.3 billion

The rest of the article tartly obverves that the Armenian central bank got rid of theirs at $400/oz.