Bullion Buying
A new report from the World Gold Council (WGC) shows that central banks are buying gold in record volumes. The development is good news for gold investors as it reflects that central banks, which set a country’s monetary policy by making changes to money supply and setting interest rates, have not lost confidence in the metal.
“[It] is clear that gold’s fundamental properties as a vehicle for capital preservation and a source of liquidity continue to endure. 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,” Marcus Grubb, managing director of investment at the World Gold Council, said in releasing the council’s Gold Demand Trends report.
Central banks, including those in Kazakhstan, the Philippines, Russia and Ukraine, increased their bullion holdings in the second quarter to 157.5 tonnes — more than double compared to the second quarter of 2011, when the central banking sector bought 66.2 tonnes, and representing 16 percent of total gold demand. It was also the highest level of buying since central banks became net buyers of gold in Q2 2009, according to the report.
While central bank buying is up, global gold demand dropped during the quarter, due mostly to softening investment and jewelry demand in the key gold markets of China and India. Gold demand was 990 tonnes in Q2 compared to 1,065.8 tonnes in the second quarter of 2011 — a 7 percent decline. Although, as the WGC points out, demand for gold was exceptional last year.
Second-quarter investment and jewelry demand in India slipped to 181.3 tonnes compared to 294.5 tonnes in the same period last year. In China, total gold demand was off 7 percent as Chinese investors refrained from buying bullion and jewelry in the face of gold price uncertainty.
In value terms, gold demand has remained stable year on year at US$51.2 billion compared to $51.6 billion in the same period last year. The average quarterly gold price was $1,609.49 per ounce, which is 7 percent higher than the average price in Q2 2011, states the report.
WGC’s Marcus Grubb said in a video clip that the council is bullish on gold considering the global economic uncertainty that continues to persist:
“We expect to see more policy easing in the Eurozone. There is the risk of an exit by Greece and bailouts for Spain and Italy before the end of the year. You’re likely to see possible quantitative easing in the United States because the US economy is not growing fast enough to reduce unemployment significantly, and also you’re likely to see more policy easing in China, as growth slows down, there is latitude for interest rate cuts in China. So we think that will all be positive for the gold price, towards the end of the year.”
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