Central Banks Go Shopping For Gold

 |  by Michael Locklear

August 29,2012 – The central banks of various nations move towards a record high for gold purchases in the last quarter ending in June. According to the World Gold Council recent central bank purchases have reached their highest since 2009. Purchases in the last quarter of around 158 tons represents a doubling of the amount purchased in the same quarter last year.

Gold purchases in the second quarter of this year reached 990 tons and central banks accounted for 16% of these new acquisitions. Central bank demands are outpacing those of jewelry and the investment community. Diminishing demand for jewelry in both India and China which combined represent around 45% of the total global demand was down in the end of the last quarter ending in June. Overall this demand was down approximately 7%.

The absence of real improvements in the US economy and the dark clouds hanging over the euro zone has prompted central banks around the world to begin setting aside part of their reserves in gold. This is an effort to reduce their dependency on the US dollar as the default currency of these central banks and an effort to began to increase their overall gold reserves.

In the June quarter the Russian central bank increased its holdings of gold in its reserves by an additional 22 tons thereby increasing its holdings to around 918 tons. The world Gold Council has reported that the central bank of South Korea had purchased 16 tons this past July. This will increase the country’s gold reserves up to 70 tons which represents approximately 1% of its total reserves. This follows a move last year in the second quarter when it increased its reserves by around 56 tons.

Should the current round of gold purchasing by central banks continue at its current rate we could see an increase by this coming December of somewhere in the neighborhood of 250 tons. If this occurs they could set new records and reach levels nearer 500 tons. Purchases this year have exceeded the toll for this time last year by around 25%.

The majority of the demand for new gold purchases is primarily coming from those central banks of emerging nations as they look to find shelter for their reserve assets from possible downturns in the value of the US dollar and the euro. Prior to 2009 most of these banks were net sellers of gold and had been for the last 20 years or so.

The central bank’s new direction towards big gold purchases signals their concern over the viability of the value of bonds being offered by the leading economic nations. Central banks that are increasing their gold reserves include the central banks of Russia, the Ukraine, the Philippines and the National Bank of Kazakhstan. All in all this is the biggest move on gold purchasing by banks for their reserves that we have seen since 1964.

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