Saturday, October 22nd, 2016 MST

Central bank gold buying ramped up in 2009

 The World Gold Council recently updated its World Official Gold Holdings, as of March 2010.  These are the data that everyone cites when talking about “official” gold holdings.  The report raises interesting issues, all of which are bullish for gold, especially the central bank activity in the gold market.

First, China admitted to “long-term purchases” of gold. In April, China’s central bank, the People’s Bank of China, revealed that it had bought 454 tons since 2003. As a result of the purchases, all of which are believed to have come from domestic sources, China now officially owns gold reserves of 1,054 tons and is number five on the World Official Gold Holdings list.

Meanwhile, Russia’s central bank continued to accumulate gold, also primarily by purchasing gold in its domestic market.  Purchases accelerated in the second half of 2009 when Russia’s gold reserves increased by 87.1 tons, versus 30.6 tons purchased in the first six months.  For the year, Russia’s gold reserves increased 22%, to end the year at to 641.5 tons, which now puts Russia in the 9th slot in the table of World Official Gold Holdings.

Of course, the really big news in the gold market in 2009 was India’s central bank purchase of 200 tons from the IMF in an off-market transaction.  Additionally (and generally overlooked), in two other off-market transactions Sri Lanka bought 12 tons and tiny Mauritius bought 2 tons.

When the IMF announced in February last year it was going to sell 403.3 tons of gold, it agreed to do so under the Central Bank Gold Agreement (CBGA), an agreement(s) under which European central banks have been selling gold in coordinated efforts so as not to disrupt the gold market.  However, when India stepped forward, before the IMF could go to the market, half the gold the IMF intended to sell over a five-year period was gone.  Now, there is speculation that the remaining gold will also be sold off-market and not under CBGA.  The IMF has said that it plans to the sell remaining the gold “in a transparent manner.”

Regardless of how the remaining 191.3 tons are sold, the gold market is prepared to handle it.  Monthly CBGA sales slowed rapidly in 2009 and by September had all but dried up.   In December 2009, CBGA sales of only 1.61 tons were reported, compared with sales of almost 43 tons in December 2008.

What is now happening in the gold market is a far cry from the 1990s when the first CBGA was announced.  Then gold was in a bear market and headlines of proposed central bank gold sales (and speculation of IMF sales) roiled the markets.  Now, IMF gold sales only bring speculation as to which central banks will be the buyers.  From day one, I’ve said that IMF gold sales would not deter this bull market.  IMF gold sales are only feeding a voracious demand.

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