Thursday, September 29, 2011

Central Banks Add to Gold Holdings

By Rhiannon Hoyle
The Wall Street Journal
Thursday, September 29, 2011

LONDON -- Emerging-market countries continued to top up their gold reserves in August, with Russia, Thailand and Bolivia among those to add to their holdings.

Central banks have bought gold as some seek to diversify foreign-exchange reserves that have grown along with emerging market export industries. The purchases have helped drive the price of gold higher, because they absorb supply and boost market sentiment.

This year, central-bank officials also began buying in earnest in reaction to the government debt woes affecting the U.S. dollar and the euro.

While central-bank officials are careful not to skew the market with huge purchases or disposals, metals consultancy GFMS Ltd. said "further large official-sector purchases should help sustain prices."

August was a volatile month for gold prices. Gold futures traded as low as $1,607 a troy ounce on the Comex division of the New York Mercantile Exchange on Aug. 1 and touched a record $1,909.30 an ounce on Aug. 23.

GFMS, a unit of Thomson Reuters Corp., said central banks appear to be viewing gold as "intrinsically more sound than most, if not all" other perceived safe-haven assets, including U.S. Treasurys, German government bonds and the Japanese yen.

Bank of Finland dealer and market analyst Eija Salavirta said in an interview last week that emerging-market central banks are moving into the gold market as buyers because of a lack of options available to diversify their reserves.

"The big education we got from the economic crisis is that you have to diversify. And now that we are in exceptional times, [a lot of] countries…don't have that many choices," she said.

The central bank of Russia, a regular buyer from its own domestic market, continued its long-term program of gold accumulation in August by adding 118,000 troy ounces to its reserves, which now stand at 27.161 million ounces, according to figures from the International Monetary Fund.

Russia's holdings were up more than 7% since the start of 2011.

Thailand continued to boost its reserves, lifting them 300,000 ounces to 4.4 million ounces, a step up from its January holdings of 3.2 million on

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