Asian central banks keep faith in gold
17 Aug 2012
Central banks in Asia and other developing nations boosted their purchases of gold in the second quarter even as demand in the jewellery, investment and technology sectors weakened from year-ago levels, according to the World Gold Council.
Gold demand in the second quarter fell 7% from a year ago, and declined 10% from the first three months of this year, the Council said in its latest report on gold demand trends. Second quarter gold demand of 990 tonnes was worth about $51.2bn. "The lack of a clear price trend generated a mixed response among consumers across the globe."
Still, through all the uncertainty, gold's fundamental properties as a vehicle for capital preservation and a source of liquidity continue to endure, the Council said. "This is evident from the activity of central banks, the ultimate long term investors, which continue to increase their gold holdings to diversify reserves and protect against reliance on one or more foreign currencies."
Demand for the precious metal by central banks and official sector institutions accelerated during the second quarter and gold reserves increased by 157.5 tonnes. "This was a record quarter for central bank buying since the sector began recording net purchases in Q2 2009"
In the first six months of the year, gold reserves increased by 254.2 tonnes, compared with 203.2 tonnes a year ago. "Purchases continue to be concentrated among the central banks of developing nations, and reflect the need for reserve diversification by maintaining a strategic allocation to gold in reserve portfolios."
"This would suggest that as central banks accumulate foreign exchange reserves, both through intervention and exchange, their gold reserves will need to increase in order to maintain a proportional allocation."
Some central banks have clearly indicated their intention to bolster gold reserves, the Council said. Among them the central bank of the Philippines and the National Bank of Kazakhstan. Russia's programme of buying saw the central bank add a further 22.3 tonnes to its reserves in the second quarter.
South Korea's central bank announced in August that it had purchased 16 tonnes of gold in July, having "judged ...market conditions were good" to make a purchase as part of its stated ongoing diversification of reserves, the report said.
The central bank has increased its gold holdings by 56 tonnes since June last year, with the aim of diversifying its portfolio. The latest purchase takes South Korea's gold reserves to 70.4 tonnes, accounting for around 1% of total reserves.
Author: Richard Newell