Central Banks Expand Gold Holdings as Russia to Kazakhstan Buy

Russia and Kazakhstan expanded gold reserves for a sixth straight month in March before the metal’s worst slump in three decades as central banks sought to diversify their assets.

Russian holdings, the world’s seventh-largest by country, climbed 4.7 metric tons to 981.6 tons, increasing 2.5 percent this year after adding 8.5 percent in 2012, International Monetary Fund data show. Kazakhstan’s hoard grew 1.2 tons to 122.9 tons, taking the gain to 6.6 percent this year after a 41 percent expansion in 2012, data on the website showed.

Gold plunged into a bear market on April 12 on speculation central banks in Europe may sell holdings to raise funds and as investors sold bullion-backed exchange-traded products. In March, the metal rose for the first time in six months on concern that Europe’s debt crisis would escalate as policy makers wrangled over a bailout for Cyprus.

“Central banks are here to stay as net buyers, they are probably the ultra long-term investors,” said Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit in Singapore.

Bullion for immediate delivery rose 0.9 percent to $1,444.97 an ounce by 9:40 a.m. in London, down 14 percent this year. Prices slumped 14 percent in two sessions through April 15, the biggest tumble since 1983.

John Paulson

John Paulson, the largest investor in the biggest exchange-traded fund backed by gold, told clients in a letter obtained by Bloomberg News that purchases by central banks and demand in Asia will support the metal. Prices rallied 9.3 percent from a two-year low of $1,321.95 on April 16 as physical purchases from China to the U.S. increased.

Turkey’s holdings rose 33.1 tons last month to 408.9 tons, increasing for a ninth month as it accepted gold in its reserve requirements from commercial banks. Azerbaijan’s holdings climbed for a third month by 1 ton and Mongolia’s holdings expanded 0.1 ton, according to the IMF data, which are updated as countries report. Serbia bought 0.1 ton in February, while Mexico’s gold reserves fell 0.1 ton in March as the nation cut holdings for an 11th month, the data showed.

Central banks may take the recent price drop as an opportunity to buy, according to UBS’s Schnider. Gold has tumbled 9.6 percent in April. Morgan Stanley said this week the peak in the gold price “has now passed,” while Goldman Sachs Group Inc. said April 23 it exited a bet on lower gold prices while saying bullion may fall even more.

The U.S., Germany and Italy are the three largest holders of gold by country with a combined 13,977 tons in their reserves, according to World Gold Council data.

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