The return of central banks to buy gold again

A look on Comex market

The return of central banks to buy gold again, where is the entry of the central banks the world gold market one of the most important developments in the past few years, a development that is liable to happen fundamental changes in this market, we are talking about consumers purchasing power of a substantial or perhaps unlimited, compared to sources of demand traditional in the global market for gold. Such a development in the global market for gold helps to keep gold prices high to some extent by the conversion of large quantities of it to the stores of central banks to remain away from trading in the market, which implies sterilization effect of increases in world production of gold on the fluctuations in market prices of the metalyellow. Unlike the case when it goes the bulk of the production of the new world of gold to fund speculation in the metal, the quantities of bullion huge shift to the stores of these funds are ready to put any price of gold when it gets traders in the metal panic, which causes fluctuations in the price of gold.

The attached table shows the ten largest reserves of central banks in the world of gold, and the percentage of gold reserves to the total cash reserves of these banks. Note that the table of gold reserves to the total cash reserves of central banks of Western countries is relatively high for historical reasons, while we find that the gold reserves of central banks of emerging countries is low as a proportion of total reserves. For example, the Chinese central bank is now the sixth largest central bank gold reserves in the world, however, when compared to what it is maintained by the Central Bank of China’s total gold reserves in general, we find that this ratio not more than is currently 1.8 per cent, which means that the weight which is represented in the total gold reserves of China’s central bank is much less than that which we see in other central banks. The same applies to Japan, Russia and India.

According to reports by the World Gold Council, the central banks of emerging countries buy gold from time to time in order to add to their reserves. From this point is expected that China, which has reserves of up to $ 3.2 trillion by the allocation of these reserves to buy gold reserves, so as to reduce its dependence on the U.S. dollar and to reduce the degree of their exposure to U.S. debt, diversify those reserves. Vahtiattiyat China’s central bank gold a little less than a thousand tons, and in turn less golden reserve of the Central Bank of China are clearly economies similar in size, did not reflect the relative distribution of the reserves of those countries of gold, as is evident from the table.

This development is to enter the central banks of countries emerging gold market is different from the general trend among central banks in the industrialized world, where the latter tend to eliminate part which their balances gold given that these assets are sterile and will cost large sums of money for storage, without being accompanied on the other hand the benefit of parallel of the Central Bank. However, scrutinizing the nature of the countries that buy gold, central banks such as China, India and Sri Lanka, the Philippines, Turkey, Russia, Thailand, noted that they share the following characteristics:

– Were not initially had large amounts of gold reserves, then it is compared with the central banks of other countries in the West, the proportions held by the central banks of gold to total reserves are relatively small, and there is a tendency among central bankers that towards overcoming the lack of weight, which is represented in the total gold reserves of these countries.

– That these banks modern era of gold as an asset reserves, and has no long experience it, and built the decisions taken by decision-makers in central banks from this perspective, building on the experience of modern gold in the last decade, which is increasing its prices at a higher rate of any financial asset in the world.

– That these banks often follow countries achieve trade surpluses into reserves liquid, and in recent years, are reserves of liquid to the central banks of many of the risks, the most important decline in the value of reserve currencies fundamental in the world, and particularly the dollar, and risk the huge surrounding the debt instruments in the majority ofcountries of the world city, and in light of these risks becomes difficult to resist the gold option.

But is already seeing depth of the phenomenon that we see now demand some central banks of emerging countries to store gold? In my opinion, is not expected that this trend will continue so that the phenomenon among central banks in the world for two reasons:

1 – that central banks often tend to invest their foreign exchange reserves in debt instruments and liquid assets high security in order to get the revenues going to these reserves, gold does not offer this feature only if the general trend for the price of gold is bullish, and this is not guaranteed in all the time.

2 – The central bank next to the interest revenue is interested also considerations of liquidity reserves, so that these reserves are ready to use at any time when the central banks of these reserves to intervene in the foreign exchange market to defend its currency, local, and that when faced with their currencies under pressure to get off or climb isdesirable in the market for foreign exchange, gold does not provide this feature. The process of conversion to the gold out of two difficulties facing the two main ways for central banks:

– It takes time, so that the central bank to find the right buyer for the large amounts that are put on the market, if this process was delayed, the central bank is exposed to risks of lack of liquidity needs.

– That the process of liquefaction reserve assets gold would result in a fluctuation considerable price in the global market for gold, given the nature of the quantities to be put up and dispose of it, which requires special accounts of the central bank, which will sales operations so that the consequent impact substantially to the revenues sales to be made by due to lower gold prices are likely to result in these processes