Central banks internationally continue to diversify their foreign exchange reserves into gold bullion due to concerns about fiat currencies – including the dollar and especially the euro.
IMF data shows that central banks were again net buyers in April with Turkey and Philippines being the largest buyers of gold.
The Philippines increased their gold holdings significantly by 32.13 tonnes to 194.241 tonnes in March – a 17% increase in their gold reserves in the month.
It was the single largest addition Philippines has made since September 2008. They have been pretty consistent buyers of gold over the last few years, but the 17% increase in April was another big rise.
Turkey expanded its gold reserves by 29.7 metric tons in April. Turkey’s bullion reserves climbed to 239.3 tons last month meaning that Turkey increased their gold reserves by 14% in April.
The central bank on March 27 doubled the share of lira reserves banks can hold in gold to 20%, saying it would provide 6.1 billion liras ($3.3 billion) of extra liquidity.
Mexico increased gold holdings by 2.92 tonnes to 125.5 tonnes in April.
Kazakhstan raised gold holdings by 2.02 tonnes to 98.19 tonnes in April.
Ukraine upped gold reserves by 1.4 tonnes to 30.607 tonnes in April.
Sri Lanka raised gold reserves by 2.177 tonnes to 7.807 tonnes in January. There is a delay in Sri Lanakan gold reserve reporting to the IMF.
Central banks added 456.4 tons last year, the most in almost five decades, and will buy as much as 400 tons this year, the London-based World Gold Council estimates.
While the gold tonnage demand from central banks in recent months has been significant, gold remains a tiny fraction of most central banks, especially emerging market creditor nations such as China, foreign exchange reserves and therefore the trend is sustainable and indeed may accelerate.
Central bank reserve diversification into gold may increase given the Eurozone debt crisis and the risk of debt crisis spreading to Japan, the UK and the U.S.
Indeed, there is the increasing possibility that some G8 debtor nations, such as the UK and Japan, may decide to once again add to their gold reserves in order to protect their currencies and guard against the risk of devaluations of the euro, dollar, yen, pound and a wider international monetary crisis.
Price is not a determining factor in central bank buying rather they are more likely being guided to secure an allocation of a percentage of their overall foreign exchange reserves into gold bullion.
Sovereign government buying of gold is likely to support gold at these levels and indeed could be the driver to higher prices in the coming weeks and months.