July 12, 2016 1:00 pm JST

China, Russia central banks still on gold-buying spree

TOKYO -- Central banks continue to add to their gold reserves, with China and Russia leading the trend to cut dependence on the dollar and the euro in an attempt to maintain confidence in their home currencies.

Central banks around the world have increased their gold reserves by 2.7% from a year earlier to about 32,800 tons, according to a World Gold Council report published last week. They bought a net 483 tons of the metal in 2015, the second largest figure since the dollar's convertibility into gold was ended in 1971, and became net buyers for the sixth straight year, according to Thomson Reuters GFMS.

China expanded its reserves by a whopping 70% in the last year to about 1,800 tons. It now has the world's fifth largest stockpile, excluding that of the International Monetary Fund. The IMF has decided to include the yuan as a reserve currency for its Special Drawing Rights.

Beijing's political rivalry with Washington also contributes to its shift to gold. "It cannot rely on the dollar in terms of economic security," said market analyst Itsuo Toshima.

Russia also built up its reserves by 18% over the last year to about 1,480 tons. Cheap crude dealt a blow to its economy and weighed down the ruble. It decided to purchase more gold instead of the dollar or the euro amid Western sanctions over the Ukraine crisis.

"The ruble has begun appreciating recently," said Yuichi Ikemizu, Tokyo branch manager of ICBC Standard Bank. "Gold reserves served their purpose by helping to avert a currency crisis."

A few central banks are selling the metal instead. South American oil giant Venezuela slashed its stockpile by 43% from a year earlier. Cheap crude squeezed the country's foreign currency income, forcing it to dip into its foreign reserves to pay off its external debt. But Venezuela is among the minority. Advanced economies, including those in the West and Japan, are keeping their reserves steady.

Emerging economies started snapping up gold in the late 2000s, when the 2008 global financial crisis and the European debt plight dented the credibility of the dollar and euro. The currency market has turned volatile again over the British vote to leave the European Union.

"China and other countries do not want to be in a situation where all their international assets are in effect dependent on the U.S.," former Bank of England Gov. Mervyn King recently wrote, adding that it is "extremely reasonable to have assets in your portfolio that are not dependent on the goodwill of other countries."

Gold prices have risen nearly 30% so far in 2016 as private-sector funds flow into the metal in response to growing economic uncertainties. Central banks account for over 10% of actual demand for the metal. Their buying spree is expected to fuel a continued uptrend in the market.

(Nikkei)

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