Mexico, Russia and Thailand are all now part of a trend for central banks to increase their gold reserve holdings. Central banks all around the world are expanding their gold reserves for the first time in a generation due to the crashing of the dollar.
By Nicholas Larkin
May 4, 2011 8:29 AM MT
Mexico, Russia and Thailand added gold now valued at about $6 billion to their reserves in February and March as prices advanced to a record, the dollar weakened and Treasuries lost investors money.
Mexico bought 93.3 metric tons since January, adding to holdings of about 6.9 tons, according to International Monetary Fund data. Russia increased its reserves by 18.8 tons to 811.1 tons in March and Thailand expanded assets by 9.3 tons to 108.9 tons in the same month, the data show.
Central banks are expanding their gold reserves for the first time in a generation as purchases by billionaire investors including John Paulson contributed to bullion extending its longest winning streak since at least 1920. Countries were also boosting their holdings in 1980 when gold rose to a then-record $850 an ounce, only to fall for most of the next 20 years.
“Central banks have good reason to buy gold,” said Peter Morici, a professor of business at the University of Maryland in College Park and a former economic adviser to the U.S. government. “The dollar is no longer a safe asset for backing currencies. Treasuries are not a sound investment” and budget and debt issues mean central banks should buy gold, he said.
Gold for immediate delivery climbed to a record $1,577.57 an ounce on May 2 and traded at $1,539.29 by 3:04 p.m. in London today. Prices are up 8.3 percent this year and have gained the past 10 years. Global holdings of gold by governments and official institutions such as the IMF stood at 30,523 tons by April, according to the World Gold Council.
The dollar today slid to the lowest level since July 2008 against six major currencies. Treasuries lost investors 0.14 percent in February and March, according to Bank of America Merrill Lynch indexes.
Bullion earlier today dropped after the Wall Street Journal reported Soros Fund Management LLC sold precious metal holdings because of a reduced risk of deflation, citing unidentified people close to the matter. The Soros fund held shares in the SPDR Gold Trust and the iShares Gold Trust equal to about 508,800 ounces as of Dec. 31, a U.S. Securities and Exchange Commission filing on Feb. 14 showed.
Soros described gold at the World Economic Forum’s meeting in Davos, Switzerland, in January last year as “the ultimate asset bubble.” In a Nov. 15 speech in Toronto the 80-year-old said conditions for the metal to keep rising were “pretty ideal” and at this year’s Davos forum he said the boom in commodities may last “a couple of years” longer. Michael Vachon, a spokesman for Soros, declined to comment today.
Since the end of 2009 countries including India, Sri Lanka, Mauritius and Bangladesh have bought gold. Before this year’s purchases, gold accounted for about 0.2 percent of Mexico’s total reserves, and 2.6 percent of Thailand’s reserves. The metal accounts for more than 70 percent of reserves of the U.S. and Germany, the biggest holders, World Gold Council data show.
“Mexico’s gold accumulation confirms the demand of emerging market central banks to diversify their reserves,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “They will be the big buyers for years to come.”
A call and text message seeking comment from Thailand Central Bank spokeswoman Sirithida Panomwan Na Ayudhya was not returned after business hours.
Kazakhstan reduced its bullion holdings by 1.55 tons to 67.3 tons in March, the IMF data show.
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