Central Bank Gold Purchases to Hit New Record This Year?

A driving force behind the bull market in gold over the past several years remained in full gear last month, according to the International Monetary Fund (IMF).

Earlier today, the IMF reported that Brazil, Kazakhstan and Turkey were the largest buyers of the yellow metal in October.  In total, over 40 tonnes of gold were purchased by central banks in the previous month.

On a percentage basis, Brazil raised its holdings by the largest amount – 17.17 tonnes, or 48.6%, to 52.52.  Additionally, the purchase marked the first time that Brazil increased its gold reserves since June of 2005.

UBS wrote in a note to clients that Brazil’s increase “is a chunky purchase by a central bank, and the gold market will likely sit up and pay attention to today’s news, not just because of its size but because this is a central bank that has not been active in the market for some time.”

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Kazakhstan was the second-largest buyer in percentage terms, as it increased its holding by 7.53 tonnes, or 7.2%, bringing its total to 111.54.  On an absolute basis, Turkey was the largest buyer last month, as its reserves grew by 17.54 tonnes, or 5.8%, to 319.91.

It is worth noting, however, that the United States continues to hold the world’s largest gold reserves of any country with 8,133.50 tonnes; Germany is a distant second at 3,395.50 tonnes.

Nonetheless, central banks in many of the world’s emerging economies have made substantial purchases in recent years.  Many market strategists believe the purchases have been motivated by an effort to protect their nations from the currency debasement inherent in the monetary policies of central banks in the world’s most developed economies – including the Federal Reserve, European Central Bank (ECB), Bank of Japan, and Bank of England.

Commenting on the growing trend of central bank buying, analysts at Commerzbank contended that “In all probability, central-bank buying in 2012 will exceed last year’s record of 457 tons.”

On Wednesday, COMEX gold futures for December delivery – the most actively-traded contract – settled higher by $4.60, or 0.3%, at $1,728.20 per ounce.