Central Bank likely to continue to buy Gold in 2017 but at a slower pace

UNITED STATES January 13 2017 3:41 PM

NEW YORK (Scrap Register): While central banks remain net buyers of gold, one research firm is expecting the pace of purchasing to continue its slowing trend in 2017.

Quoting the latest data from the World Gold Council, Simona Gambarini, commodities economist at Capital Economics, noted that official gold purchases slowed significantly last year, totaling 53 tons as of November, down from 839 tons in 2015. 

However, 2015 reserve data is skewed because China boosted its gold reserves by 604 tons, the first time it updated its official reserves in six years.

“However, if we strip out the impact of China, demand still looks weak by comparison, with net purchases actually negative in the year to date,” said Gambarini. “The pace of the official sector’s purchases of gold undoubtedly slowed in 2016.”

However, Capital Economics is not ready to write off this important sector in the gold market as they expect developing nations to diversify into gold. 

“With around a third of global government debt yielding negative interest rates, central banks are likely to turn to gold to optimize their reserves, particularly if we are right and gold prices actually fall this year,” she said.

However, Gambarini also added that central banks could find it difficult to increase their reserves if the U.S. dollar continues to strengthen.

“A further appreciation of the U.S. dollar could prompt emerging markets central banks to sell part of their reserves to defend their currencies,” she said.