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The world’s central banks became net buyers of gold during 2010 after they were previously net sellers for 21 years, the World Gold Council said Thursday.
17 Feb 2011
By Allen Sykora
(Kitco News) -
The world’s central banks became net buyers of gold during 2010 after they were previously net sellers for 21 years, the World Gold Council said Thursday.

“We anticipate that this trend will continue, with further acquisitions by emerging-market central banks and no resumption of significant sales by those in advanced economies,” said the WGC in its quarterly demand-trends report.

During 2010, the world’s central banks bought 87 metric tons of gold more than they sold.

This is far below the average of 400 to 500 tons per year of official-sector sales from 1989 to 2007, said the report. This tally dropped by roughly half in 2008, before plummeting further to sales of 30 metric tons for the full year 2009.

“Going forward, the removal of this 400 to 500 tons (of annual supply) is very significance and is hence providing strong fundamental (support) to the gold market itself,” Eily Ong, investment research with the WGC, told Kitco News.

Collectively, the official sector holds 18% of all above-ground stocks of gold, said the Gold Council. Western European nations and the U.S. typically hold 40% of their external reserves in gold, while developing countries tend to have 5% or less.

The emerging-economy nations are the ones that have been substantial buyers, said the WGC.

“They are looking at gold as an increasingly attractive means of diversifying their reserves,” Ong said. “They hold a large sum of their assets in U.S. dollars.”

Russia was one of the most significant buyers in 2010, adding 135 tons to its reserves, the report said. “Thailand and, to a lesser extent, Venezuela also added to their holdings of gold.” China has not released any official data on gold holdings since 2009, but nevertheless there is a market expectation that the country has been obtaining its own mined production in order to keep building its gold reserves, Ong reported.

Meanwhile, for the year 2010, sales by signatories of the European Central Bank Gold Agreement amounted to less than 7 tons. This is a fraction of the 400 quota allowed by the current CBGA and also a small fraction of the average of 388 tons per year over the last decade.

“Prior to the onset of the financial crisis, several European central banks initiated gold sales programs in order to rebalance their external reserve portfolios and increase their foreign currency holdings,” the WGC said. “However, as the financial crisis deepened and quickly developed into a major sovereign-debt crisis, European central banks have shown a sharply diminished appetite for gold sales, with sales effectively coming to a halt over the past three years.”

The International Monetary Fund completed previously announced sales of 403.3 metric tons during the fourth quarter.

While central banks collectively were net buyers for full year 2010, selling nevertheless slightly outweighed purchases for the fourth quarter alone by 13 tons, the WGC said. This was mainly due to 19.5 tons in sales by the Philippines as it continued two-way activity, the report said.

By Allen Sykora of Kitco News; asykora@kitco.com
Courtesy: www.kitco.com
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