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Central banks now net buyers of gold

Thursday 17 February 2011 - by Andrew Hickley

A structural shift in policy saw central banks becoming net buyers of gold rather than net sellers for the first time in 21 years in 2010.

Emerging markets have continued to purchase gold as a means of expanding external reserves while larger more risk-averse nations have been increasingly unwilling to sell in the wake of the European sovereign debt crises, according to a global trends report from the World Gold Council.

Stating that central banks have relied on the asset for diversifying their reserves because it has "no credit or counterparty risk", the WGC argues that its "immediate liquidity in all market conditions" has seen banks turn to gold as a safe resource.

Russia has led the way in gold purchases in 2010 by purchasing 140 tonnes of the material, while central banks in emerging economies such as Thailand (16 tonnes) and Bangladesh (10 tonnes) were also keen buyers.

Net central bank purchases for the full year 2010 amounted to 87 tonnes, though figures for China are not included, with the country failing to release official figures on its holdings since 2009.  

Noting that Russia has announced plans to purchase at least 100 tonnes of gold per year to replenish country reserves and that European central banks are facing intense examinations of their finances, managing director of government affairs at the WGC George Milling-Stanley says that this trend is likely to continue.

"If conditions in Europe do settle down, it is possible that European central banks may again consider gold sales programmes; however at this time, it would seem too early for any European nation to take such action in the face of heightened scrutiny.

"Any gold sales from advanced economies are unlikely to be significant as the official sector remains highly risk-averse. Collectively, the official sector is still a significant holder of gold. Central banks remain committed to its importance and relevance in maintaining stability and confidence as they have been for hundreds of years."

Overall gold demand in 2010 reached a 10-year high of 3812 tonnes, in spite of its average price rising by around 40 per cent between 2008 and 2010.

In value terms, annual gold demand surged by 38 per cent to a record of $150bn (€110.5bn).

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