BS: Week greenback leads to bankers buying bullion
A DEBILITATED greenback has put an extra shine on gold.
World Gold Council data reveals that amid growing concern over the weakness of the dollar, about $US28 billion ($31.4bn) of bullion was bought by central banks this year, based on an average price of $US978 an ounce.
The biggest buyers have been the emerging economies of China, Russia and India, but smaller countries such as The Philippines, Kazakhstan, Sri Lanka and Mexico have also been shifting their reserves into gold.
The value of the US dollar, the default reserve currency for most countries, has fallen as investors have grown cautious about America's huge debt burden and possible inflationary trends.
Its fall means that the national savings of countries such as China have dwindled, and with gold being perceived as a better store of wealth it is back in favour as a reserve asset. Meanwhile, a handful of developed countries have taken advantage of record gold prices to reduce the size of their vaults. The metal hit a peak of more than $US1200 an ounce this year, according to Goldman Sachs.
Total sales of gold bullion by central banks this year have been about $US12bn based on Goldman's average price of $US978 an ounce, the largest disposal coming from the International Monetary Fund, which sold 200 tonnes to India. France has raised about $US2.5bn selling 73.4 tonnes, while Sweden netted about $US476 million selling 13.8 tonnes. The Netherlands raised about $US307m selling 8.9 tonnes.
By comparison, Gordon Brown sold more than 400 tonnes of the Bank of England's gold 10 years ago for just $US275 an ounce, raising about $US3.9bn. Had he sold the gold this year, he would have raised $US10bn more.
According to the World Gold Council, China has been the biggest buyer this year, adding 454 tonnes to bring its central bank reserves to 1054 tonnes. India added the 200 tonnes of IMF gold, while Russia added 111.8 tonnes.
Among other emerging economies, The Philippines was the largest buyer, adding 16.6 tonnes worth $US572.6m. Kazakhstan added 2.6 tonnes, Belarus eight tonnes, Sri Lanka 10 tonnes and Mexico five tonnes.
Dylan Grice, an analyst at Societe Generale, said recently: "Central banks aren't known for their investment acumen. Some commentators have mockingly suggested that India's decision to buy 200 tonnes of IMF gold signals the top of the market in the way that heavy selling by the UK signalled the bottom in 1999."
However, Mr Grice believes that the continued weakness of the dollar, concern about inflation and fiscal policy will continue to drive the gold price.
A spate of gold-buying in the 1960s, led by France, resulted in the collapse of the Bretton-Woods system in 1971 when the link between the value of the dollar and gold was abolished. "Like today, central banks weren't buying gold in the late 1960s to prop it up, they were abandoning attempts to prop up the dollar," Mr Grice said. "Gold feels frothy today, but India's purchase of IMF gold eerily parallels the French purchases of the late 1960s. And ill policy winds are blowing in its favour."
