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As risks, uncertainty grow, so does reliance on gold

China's central bank has been buying gold to shore up the country's creditworthiness.

 TOKYO -- Whether they are stockpiling it for a rainy day or selling it to raise some quick cash, emerging countries are relying more and more heavily on gold.

 

   Growing instability in financial markets and greater geopolitical risks provide increased incentives for buying the precious metal, and larger gold holdings help improve a country's creditworthiness. When faced with financial difficulties, countries can also sell the commodity for cash.

A safe haven

The People's Bank of China purchased 15 tons of gold in September, which would cost roughly 67.5 billion yen ($556 million) at the current market price. The PBOC's gold holdings at the end of September, at 1,709 tons, were the world's fifth-biggest.

     In July, the central bank announced its official gold holdings for the first time since 2009. Since then, the PBOC has been buying 15 to 19 tons of gold every month, not only from the country's mines, but also from global markets. London, a major cash market, has been seeing greater activity from Chinese financial institutions since last year.

     These moves are part of Beijing's efforts to have the yuan included in the basket of currencies that make up Special Drawing Rights, an international reserve asset created by the International Monetary Fund. The IMF's executive board will likely vote to include the yuan during a meeting planned for late November.

     The Bank of Russia, meanwhile, bought 30 tons of gold in August, double the amount purchased by its Chinese counterpart. The Russian bank held about 1,318 tons of gold at the end of August. To reduce the nation's dependency on the dollar and euro, the BOR buys gold produced in the country and holds it as foreign currency reserves.

     Still, the PBOC's gold holdings account for only 1.6% of its foreign currency reserves, while the BOR's account for 13.1%. Both figures are much lower than the more than 60% seen in Western countries.

     The Central Bank of Jordan's gold holdings surged 150% to 42 tons from a year earlier. Such rapid growth is unusual, but with civil war raging in neighboring Syria, Jordan has been eager to build up its safe-haven assets.

In a pinch

The National Bank of Ukraine, meanwhile, was forced to sell 14 tons of its gold for cash as political unrest continued to batter the country's economy.

     The central bank of Nepal recently sold 31 tons of gold in the space of a year, but the reason is not clear, given that the move came before the devastating earthquake struck the country in April.

     Venezuela's central bank increased its gold holdings under the government of former President Hugo Chavez but has recently started selling it as the country takes a direct hit from falling crude oil prices.

 

(Nikkei)

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