Jack Farchy - London— Financial Times
Published Thursday, Nov. 17, 2011 7:08AM EST
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Central banks made their largest purchases of gold (GC-FT1,743.90-30.40-1.71%) in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.
The scale of the buying, at 148.4 tonnes on a net basis, will come as a surprise to many traders as it is a long way beyond the purchases that had previously been disclosed.
The data were published in a quarterly report by the World Gold Council, a lobby group for the gold industry, on Thursday morning. The WGC declined to detail the identity of the central banks behind the majority of the buying citing “confidentiality restrictions”, saying only that “a slew of new entrants emerged wishing to bolster gold holdings”.
The activity of central banks is one of the most important drivers of the gold market, but many banks disclose few details about the changes in their bullion reserves.
Central banks became net buyers of gold last year after two decades of heavy selling - a reversal that has helped propel the price of bullion to a high of $1,920.30 (U.S.) a troy ounce in September, up 600 per cent in a decade.
This year, led by emerging market central banks intent on diversifying their growing foreign exchange reserves, they are set to buy more gold than at any time since the collapse of the Bretton Woods system 40 years ago, the last time the value of the dollar was linked to gold.
The purchase of 148.4 tonnes in July-September is the largest since GFMS, the consultancy which produces the data underlying the WGC reports, began compiling quarterly numbers in 2002. Before then, the last time central banks were net buyers of gold was in 1988 when they bought 180 tonnes.
Marcus Grubb, head of investment at the WGC, said of the buyers: “We believe it’s a number of purchasers from different countries.”
The majority of the buying took place in September after prices fell sharply from record levels at $1,900 to a low of $1,534.49, he said. It also coincided with growing international tensions over the US dollar after a tense dispute in Washington about raising the debt ceiling.
However, Mr. Grubb said that the buyers were probably pursuing longer-term targets: “Central bank buying tends to follow a different heartbeat than pure investment purchases of gold. It’s often based on targets set earlier in the year on gold as a proportion of foreign exchange reserves.”
He predicted that central bank buying for the full year could be 450 tonnes, imply a further 90 tonnes in the fourth quarter. GFMS last month said that central bank purchases were likely to be in excess of 400 tonnes and could reach 500 tonnes, an upward revision from its forecast in September of 336 tonnes of buying for the year.
Elsewhere, the WGC reported that China overtook India to become the largest consumer of gold jewellery in the third quarter. Chinese jewellery consumption rose 13 per cent from a year earlier to 138.6 tonnes, while buying from India - traditionally the world’s top consumer - fell 26 per cent.
