IMF Data Bolsters Gold Markets
Posted by Adam King on May 25, 2012
Gold markets, after hitting a four and a half month low last week, has had a price lift associated with revelations from the International Monetary Fund that several countries have again increased their gold holdings.
Previously, entities ranging from the IMF to the World Gold Council have reported that the volume of trade in gold bullion among the central banks of the world has been occurring at forty-year highs since the fourth quarter of 2011. Not since the end of Bretton Woods during the Nixon administration have central banks been buying gold in the amounts they are now buying gold.
Such significant players have a clear effect in the gold markets, as they consume enough volume to affect the spot price through supply and demand fundamentals. The gold price has rebounded off recent lows, but only in the past two days and the gains in price did not stick as yet. There is a great deal of indication from the markets that the correction in gold is set to continue for the coming weeks and months and the correction could much longer and more protracted than the corrections we experienced in September and December of 2011.
The central banks of industrialized economies, including the US, Russia, and Japan have been net-buyers of gold for some time, but now we are seeing developing countries getting into the gold-buying bandwagon.
Kazakhstan, Ukraine, and Mexico all made significant purchases in the gold market last month, per reports for the IMF. The Philippines increased its holdings by more than one million troy ounces.
It is speculated that emerging markets are buying gold as a reactionary measure to the sovereign debt crises, which have significant influence on markets. Gold is the best way of hedging against the risks posed by the sovereign debt crises and any currency problems that might ensue.
For now, the concerns of emerging economies about the sovereign debt crises are enough to spur them to buy gold at remarkable highs. This action in gold markets is certainly affecting the gold price, though possibly temporarily, through significant players adding to demand.
US Gold Market