The markets are volatile but overall remain within established ranges, save for gold which continues to roof and is easily on track to have a look at the $1100 - $1150 level. For the bulls the most exciting aspect of the rally is the fact that it is taking place against every known tradable currency, the sure sign of any gold rally.
China – with the world’s largest FX reserves – at around 2.3 trillion has just 1054 tonnes of gold, “just” $37 billion at current levels, a mere 1.6% or thereabouts of their overall foreign currency holdings. As shown below the BRIC countries between them (actually, more accurately the RIC countries as Brazil’s gold holdings are unchanged over the year) have been building their gold reserves rather smartly, from around 50 million oz at the beginning of the year to around 72moz currently.
So does this mean that central banks are flooding into gold, or that there is a sea-change in appetite for gold by central banks? We doubt it. To a large extent the decision by India to buy the IMF gold is a function of there being available a large bloc of liquidity at
largely a fixed price and for the Indians, this represented an opportunistic ability to pick up gold. China is now expected to express the same opportunistic tendency, but its gold reserve accumulation over the past few years has been entirely a function of soaking up excess liquidity of bullion in the local market and thus has not represented – even at the margin – a decision to sell FX reserves to buy gold.
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