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Central Banks across the nations are these days are on a gold buying spree to build up the yellow metal reserves in place of foreign exchanges held by them in US dollar. But gold reserves held by the central bank of Sout..
08 Jan 2010
JOHANNESBURG (Commodity Online): Central Banks across the nations are these days are on a gold buying spree to build up the yellow metal reserves in place of foreign exchanges held by them in US dollar. But gold reserves held by the central bank of South Africa declined in 2009.

Why is it that the gold reserves and currency reserves held by the South African Reserve Bank are decreasing these days, while central banks in countries like China and India are aggressively trying to mop up gold reserves?

Here is a statement from the South African Reserve Bank of this question:

“The gross gold and foreign exchange reserves decreased to US$39,7 billion and the international liquidity position to US$39,0 billion at the end of December 2009.

The change in the gold and foreign exchange reserves was the net result of the Bank’s foreign exchange operations and downward valuation adjustments. Due to the diversified nature of the foreign exchange reserves, significant valuation changes are experienced when exchange rate movements become more volatile.

Such volatility was experienced in December with the USD appreciating against various currencies including the EUR, GBP and SDR. This resulted in downward adjustments in non-USD denominated reserve holdings (when these are expressed in USD).

Besides the decline in the value of foreign exchange reserves, the value of gold reserves also declined owing to a lower gold price. Foreign deposits received declined as a result of withdrawals by the Government to meet its foreign exchange obligations.”

It looks strong dollar and lower gold prices in South Africa has been one main reason for the fall in the net gold and foreign exchange reserves in that country.

Gold reserves held by the South African Reserve Bank fell $257 million to $4.438 billion due to lower prices, which fell to $1 105 an ounce in December from $1 169 in November. Currency reserves fell by $439 million to $32.475 billion.

Last year, the South African Reserve Bank had announced that it planned to increase its gold reserves, as the country juggles the different currencies in which its reserves are denominated. At present, around 11 percent of South African foreign exchange reserves are in gold. The rest are in a combination of dollars, pounds and euros.

South African Reserve Bank Governor Tito Mboweni had then told reporters that when he came to the post, 10 years ago, the central bank vaults containing the reserves were virtually empty. "Today the reserves amount to as much as 90 percent of the value of the bank's balance sheet," he said then.

The central bank government had also said that he had no target for the gold reserves to reach, but will just begin to increase the proportion held in gold slowly.

The United States is the undisputed leader in gold reserves in the world with 8139 tonnes of gold under its custody. China made news on gold in 2009 when it declared that the dragon country will build at least 10,000 tonnes of gold reserves in the next 10 years. China is currently the fifth biggest holder of gold reserves with 1054 tonnes.

Then, India—the largest consumer and importer of the precious yellow metal—made the biggest news on gold in November when its central bank, the Reserve Bank of India (RBI), bought 200 tonnes of gold from IMF for a high price of $1045 per ounce. This singular action from India took the gold market to an unprecedented bull run, taking the yellow metal prices to a historic high of $1227 per ounce in November. Gold prices have since then come down, but the golden ripple effect that India’s IMF gold buy still reverberates across the bullion markets in the world.

About 30,000 tonnes of the world’s gold [20-25% of above ground inventory] is held in central bank vaults.
Major Central Bank Reserves (2000)
Nations & Institutions Reserves (Tonnes)
USA (8139)
Germany (3469)
IMF (3217)
France (3025)
Switzerland (2590)
Italy (2452)

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