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Central Banks Succumb Again to Bullion’s Lure

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6-7 May 09 | FT

Ten years ago on Wednesday the UK Treasury sent gold prices tumbling when it announced it would sell a chunk of its gold reserves.

In a matter of weeks prices plunged to a 22-year low of $250 a troy ounce and, over the course of that year, central banks from Australia and Switzerland to the Netherlands announced plans to sell a large slice of their bullion.

“There was a feeling that countries were racing each other to sell their bullion,” says Jonathan Spall, director of commodities at Barclays Capital in London and an expert on central banks’ gold activity.

A decade later the picture looks different: sales in Europe have slowed to a crawl and fresh demand is emerging elsewhere. >>>

Beijing bets on bullion

China is expected to keep buying gold to diversify its vast foreign reserves after it recently revealed it had been secretively buying bullion.

Beijing and Shanghai-based gold industry analysts said the country had almost doubled its bullion holdings. But they said China was likely to make as many purchases as possible within its borders, rather than turn to international markets where it could push up gold prices.

Beijing’s exact gold purchasing intentions are a state secret, but industry analysts are betting on more purchases as Beijing has been clear about its desire to diversify its foreign reserves away from the US dollar. Although gold is quoted in dollars, its price usually rises when the dollar weakens.

The analysts base their bet, at least in part, on the history of another buyer: Russia. After Moscow announced it was buying bullion, it regularly disclosed information revealing almost monthly increases in its gold assets. >>>

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Written by Editors

7 May 2009 at 3:28 pm

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