Central Bank gold holdings fall to lowest since 1948, IMF says

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15 Mar 2007 bbj.huGold holdings by central banks and other government organizations declined for the eighth straight year in 2006, to the lowest in almost 60 years, figures from the International Monetary Fund show.
Bullion holdings were 867.6 million ounces last year, down 1.2% from 2005, the Washington-based International Monetary Fund said on its Web site. That's the lowest since 1948, according to the World Gold Council. Gold climbed 23% last year as investors took up some of the supply through exchange-traded funds, or ETFs. „There is a lot of speculation some major central banks out of Asia or emerging countries will be increasing their gold position,” said Markus Bachmann, manager of the $280 million Craton Capital Precious Metals Fund in Johannesburg. „What is far more important is the demand coming from the ETFs.”

Of the top 15 government holders, Russia was the only bank to make purchases. Its total was 12.91 million ounces in December, up 3.8% from 12.44 million a year earlier, according to the IMF. Russia central bank spokesman Vladimir Lavrov in Moscow declined to comment. Sellers last year included France, Austria, Spain, the Netherlands, Portugal, Sweden, the Philippines, the Czech Republic, Serbia, Colombia, El Salvador and Mexico. The European Central Bank was also a seller, according to its Web site. China's holdings of 19.29 million ounces in December have stayed unchanged since 2001, when they were 16.1 million ounces, the IMF figures show.



„People like to talk about central banks buying gold when actually they rarely do,” said Matthew Turner, an analyst at Virtual Metals Research & Consulting in London. To be sure, gold is attracting some of the emerging nations. The central banks of Kazakhstan, Belarus, Tajikistan, Suriname and Ukraine increased their holdings last year. „Over the last 10 years what essentially happened was a lot of new gross sales activity from central banks, mainly the Europeans, and very little buy-side activity,” said Philip Klapwijk, chairman of London-based research company GFMS Ltd. who has followed gold and central banks since 1989.

„Last year there was a change and the buy-side interest could be identified to a reasonable scale.” Governments don't tend to buy and sell investments because of the price, Klapwijk said. „Diversification is the name of the game.” Of the 4.98 billion ounces of gold in inventories at the end of 2005, 52% was in the form of jewelry, 18% was in central bank vaults and 16% was investor owned, Klapwijk said. „By the end of this decade, private individual stocks are likely to exceed official stocks for the first time ever,” he said. (Bloomberg)

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LONDON, March 15 (Reuters) - Prices of key precious metals will surge this year and next because of contracting mine supply, an expected decline in the dollar and lower sales by Europe's central banks, ABN-AMRO said on Thursday.

Average gold prices were likely to jump to $695 an ounce in the current year and to $740 in 2008 from $604 last year, it said in its latest Global Mining report.

ABN-AMRO saw average prices of platinum rising to $1,275 an ounce this year and to $1,345 next year from $1,142 in 2006. Palladium was forecast to average $375 in 2007 and $425 in 2008 from $320 last year.

"We have retained our enthusiasm for the market outlook for gold ... The market has seen that the gold price can exhibit extreme price volatility," it said.


Spot gold <XAU=> was quoted at $645.40/646.40 an ounce by 1316 GMT. Platinum <XPT=> was at $1,213/1,218, while palladium <XPD=> was last at $348/353 an ounce.

Supporting themes were a dollar weakness, positive supply-demand fundamentals underpinned by constrained mine supply, demand growth, geopolitical tensions and the fact that signatories to the European gold agreement were unlikely to meet their full 500 tonnes a year allocated gold sales, it said.

"We forecast France will be the main seller with 600 tonnes, having already disposed of 250 tonnes in the first two years of the five-year plan. France, Spain, Portugal and the European Central Bank are likely to be the main sellers."

Europe's Central Bank Gold Agreement (CBGA) was first negotiated in 1999 to stabilise prices when gold was languishing below $300 because of the attraction of other investments.


The second pact, agreed in 2004, raised the limit on gold sales by its 15 signatories over five years to 2,500 tonnes at a rate of 500 tonnes a year, from 2,000 in the previous 1999-2004 period.

The third year of the current pact started last September.


"More and more dollar watchers including ourselves are forecasting that 2007 will see a more definitive breakdown in the trade-weighted dollar. Perhaps more a gentle ebb of -- say a 10 percent decline over the next couple of years -- is all that will occur, but that would be enough to propel gold higher."

Gold often moves in the opposite direction to the dollar.

"Risks remain that the U.S. Fed has another tightening phase up its sleeve which keeps the dollar strong and also that as in May 2006, gold falls foul of aggressive speculative sales of commodities in general. If this scenario eventuates, it will likely provide an attractive entry point," the report said.

ABN AMRO said that unlike other commodities enjoying supply-side growth, gold continued to face contracting supply, with global production falling by two percent to 2,467 tonnes in 2006 from the previous year.

"Once again South African supply has been the dragging anchor... Rising costs at their deep underground mines and an adverse currency in the shape of a firming rand have all played their part."

At its best, the South African gold mining industry was able to produce 1,000 tonnes of gold per year. Since 1990, the output has slumped 54 percent to 279 tonnes in 2006.

&copy; Reuters 2007. All Rights Reserved.

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