Last Updated : 29 November 2011 at 23:30 IST
Will central banks' hidden gold demand boost gold prices?
The release of last week’s IMF statistics for October revealed a continuation of central bank appetite for gold with net purchases of just over 20 tonnes. A number of existing buyers, such as Russia, added to holdings (a sizeable 19.5 tonnes), said Barclays Capital in a research note.
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LONDON (Commodity Online): The release of last week’s IMF statistics for October revealed a continuation of central bank appetite for gold with net purchases of just over 20 tonnes. A number of existing buyers, such as Russia, added to holdings (a sizeable 19.5 tonnes), said Barclays Capital in a research note.
According to Barclays, data to October shows Russia has increased reserves by 82 tonnes so far in 2011, compared to 139.6 tonnes last year. Russian central bank First Deputy Chairman Alexei Ulyukayev has said, "We have been implementing a programme of raising the share of gold in the reserves for several years... we are acquiring huge volumes... we are not planning to step away from this path".
Russia’s gold share of total reserves is now close to 9%. Kazakhstan bought 3.2 tonnes of gold in October, taking purchases for the year to just over 6 tonnes following its announcement it would be buying domestic gold production and had planned construction of a third gold refinery as part of its plans to further increase its gold reserves.
Bolivia announced a similar move with purchases at 14 tonnes so far this year. Belarus, Colombia and Mexico were also small net buyers in October. There were also net sales in October from Tajikistan (-0.4 tonnes) and Germany (4.7 tonnes). Germany has historically sold gold for the purposes of coin production and this was indeed reflected in commentary on the ECB website that stated “sale of gold commemorative coins by one Eurosystem central bank” thus overall selling remains subdued.
The World Gold Council’s Gold Demand Trends report for Q3 11 report highlighted net purchases of 148.4 tonnes from the official sector. Although the net demand in Q3 11 was not unexpected given the swing in appetite from the sector over the past couple of years, demand was stronger than expected given published data. Reported data shows net purchases of just over 20 tonnes in Q3 11, and the WGC noted additional purchases were made by a number of countries’ central banks which cannot currently be identified due to confidentiality restrictions.
Thus, combined with October’s data this takes net buying from the official sector to just under 370 tonnes surpassing our original estimate of 325 tonnes for the full year. Barclays has highlighted previously central bank appetite added an important layer of support to gold prices, and the stronger than expected data for Q3 11 reinforces their positive view on gold.
