Gold is a significant part of a country’s foreign reserve base as many currencies lose their value
The latest figures not only show some substantial gold buying in April, but also a big lift in gold purchases by The Philippines which actually date back to March, but were slow in being notified to the IMF. The Phillipines’ March gold purchases amounted to no less than 1.033 million ounces – 32 tonnes – of the yellow metal – the biggest volume since Mexico bought around 78 tonnes a little over a year ago – and increased tet country’s gold reserves by almost 20%.
The Phillippines was not the only laggard in reporting increased gold reserves though. Tiny Sri Lanka raised its reserves by an even greater 39%, but dating back to January, with a rise of 2.177 tonnes to 7.807 tonnes – obviously far less significant in the global picture but yet another indication of the perceived significance of gold in particular in the Asian economies.
The most significant reported gold purchases in April itself included 29.7 tonnes by Turkey (a 14% increase in its reserves, but this is thought to have largely been due to its policy of acceptance of gold as collateral from commercial banks), 2.92 tonnes by Mexico, 2.02 tonnes by Kazakhstan, and 1.4 tonnes by the Ukraine.
The continued buying by Central Banks does continue to indicate an underlying unease about the sovereign debt situation and its impact on the value of some key reserve currencies- not least the dollar and the euro.
Some countries do not report their total holdings to the IMF for political reasons, but hold new gold purchases in accounts that are not reported until it is considered politically expedient to do so. Last time China reported an increase in reserves was in 2009. Since then there has been much speculation that China could be building up its reserves at a rate of four or five hundred tonnes a year or more given the level of domestic gold production and the big surge in imports seen. Although China is the world’s sixth largest holder of gold, the metal only represents a tiny 1.8% of its reserves and there have been a number of presumably government approved (is there anything else in China?) statements by officials that do suggest the nation is carefully buying on dips in the gold price so as not to create disruption in a relatively orderly global gold market.
Overall reported Central Bank gold purchases last year amounted to over 450 tonnes – the highest for nearly 50 years and The World Gold Council and GFMS have suggested that this year will see another 400 tonnes or more flowing into Central Bank coffers – and the purchases to date suggest that this target may well be achieved. Gold may have fallen out of Central Bank favour for a few decades, but the realisation now is increasingly that it should be a significant part of a country’s foreign reserve base as fiat currencies the world over lose their value.
