Central banks buy heavily in gold markets

Developing markets’ central banks are feverishly buying gold as a safe haven against Eurozone collapse, as the difference between European and emerging markets’ outlooks diverges further.

Mexico bought another three tonnes in April, on top of nearly 17 tonnes in March, and a record 78 tonnes in 2011. Kazakhstan purchased two tonnes. And the Philippines bought 32 tonnes in March alone, all according to International Monetary Fund data.

The buying is understandable, as investors fear Greece exiting the euro – an event that the Institute of International Finance said would make the European Central Bank insolvent and therefore unable to rescue ailing economies.

European pensions are acting similarly, according to Mercer, which found 21% of Continental pensions planned to lower their exposure to domestic equities.

Charles Robertson, global chief economist at Renaissance Capital, noted the “primary attachment figures for investors – the US or German governments – are no longer the safe havens they once were. They have public-debt-to-GDP ratios of 90% to 100%, worse than Spain’s, and the Federal Reserve and ECB can no longer guarantee that investors’ money will be protected if investors return home.”

In such an absence of certainty, central banks’ buying of gold in the short term at least seems to have been mis-timed. Gold was down 12% over three months to $1,570 per troy ounce by 25 May. Over 12 months is it a modest 3% higher.

Martin Arnold, senior analyst at ETF Securities, said: “The continued deep discord between Eurozone leaders on a host of critical issues is likely to keep the markets on edge.”

For future prospects for precious metals, Arnold suggested watching for any suggestion of further money printing from the ECB (for gold), and indicators of any recovery of the global industrial cycle (for silver, platinum and palladium).





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