Central bank gold buying at 40-year high: FT

New York, 18 November 2011 (MIA) - Central banks made their largest purchases of gold in decades in the third quarter as a sharp drop in prices in September spurred buying to diversify reserves, reads "The Financial Times".

The scale of the purchases at 148.4 tonnes on a net basis was far bigger than previously disclosed and puts central banks on track to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.

Analysts said the buying, led by emerging market central banks intent on diversifying their growing foreign exchange reserves, helped explain gold’s rebound from a low of $1,534 a troy in September as large hedge funds such as Paulson & Co were forced to sell some gold to cover losses elsewhere.

“Central bank buying tends to follow a different heartbeat than pure investment purchases of gold,” said Marcus Grubb, head of investment at the World Gold Council, a lobby group for the gold industry. “It’s often based on targets set earlier in the year on gold as a proportion of foreign exchange reserves.”

On Thursday, gold dropped 2.5 per cent to $1,718 a troy ounce, following other commodities such as oil and copper lower.

The WGC, which published the purchase data, declined to identify the central banks behind the majority of the buying, saying only that “a slew of new entrants emerged wishing to bolster gold holdings”. The countries that have publicly disclosed their purchases include Thailand, Russia and Bolivia.

Central banks are one of the most important drivers of the gold market but disclose few details about the changes in their bullion reserves. As a group, they became net buyers of gold last year after two decades of heavy selling – a reversal that has helped propel the price of bullion to a high of $1,920.30 a troy ounce, up 600 per cent in a decade.

The purchase of 148.4 tonnes in July-September is the largest since GFMS, the consultancy which produces the data underlying the WGC reports, began compiling quarterly numbers in 2002. Before then, the last time central banks were net buyers of gold was in 1988 when they bought 180 tonnes.

Mr Grubb said the majority of buying took place in September after prices fell sharply from record highs to a low for the month of $1,534. It coincided with growing international tensions over the dollar after a dispute in Washington about raising the US debt ceiling.

Mr Grubb predicted that central bank gold buying for the full year could reach 450 tonnes, implying a purchases of a further 90 tonnes in the fourth quarter.

GFMS last month said central bank purchases were likely to be in excess of 400 tonnes and could reach 500 tonnes, an upward revision from its September forecast of 336 tonnes.

Elsewhere, the WGC reported that China overtook India to become the largest consumer of gold jewellery in the third quarter. Gold for Chinese jewellery consumption rose 13 per cent from a year earlier to 138.6 tonnes, while buying from India – traditionally the world’s top consumer – fell 26 per cent.