Central Banks continue to add to Gold reserves

By Rhiannon Hoyle
Of DOW JONES NEWSWIRES

Original source

LONDON (Dow Jones)--Mexico and Russia lifted their official gold holdings sharply last month, each adding more than half a million troy ounces to their reserves as a host of central banks around the world continued to beef up their stockpiles of the precious metal.

According to the latest figures from the International Monetary Fund Tuesday, central bank officials returned to the international gold market as keen buyers last month--a move that should be positive for gold prices, particularly after much softer demand from the sector in February, say industry participants.

"With [speculative] positioning light, participants could certainly use this as an excuse to become a little friendlier towards the yellow metal," UBS precious metals strategist Edel Tully.

Emerging markets' central banks have been buying gold in reaction to the sovereign debt crises affecting traditional reserve currencies, like the dollar and the euro. This has become a key support for gold prices, as it not only absorbs supply but boosts investor sentiment toward the metal, market participants say.

According to the IMF, Mexico's central bank purchased a net 541,000 ounces of gold in March, increasing the country's official reserves of the precious metal to 3.941 million ounces. Russia meanwhile returned to the market as a buyer after reporting net sales in February for the first time since early 2007. It purchased 532,000 ounces of gold, taking its official reserves to 28.799 million ounces.

Elsewhere, Turkey's central bank--which last year began to accept gold as collateral from commercial banks--reported a 369,000-ounce lift in its reserves in March, to 6.739 million ounces.

Kazakhstan's central bank lifted its reserves 138,000 ounces, to 3.092 million ounces, while Ukraine raised its official reserves by 38,000 ounces to 939,000 ounces and Tajikistan increased its holdings 13,000 ounces to 158,000 ounces. Belarus, Greece and Mongolia were also buyers.

"There is an increasing realisation amongst central bankers that gold is a less risky alternative to most paper currencies and a recent survey showed that the majority of central bank reserves managers were favorable towards gold," bullion dealer GoldCore said in a market report.

UBS's Tully said the data help to explain why the $1,600/oz price floor managed to hold last month, despite indicators at the time suggesting gold should fall below that level.