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China and Russia are buying gold and don't care what it costs
By Myra P. Saefong
MarketWatch.com, New York
Friday, September 13, 2019
Emerging markets have beefed up gold holdings, undeterred by prices near their highest levels in more than six years, as countries such as Russia and China diversify their foreign-exchange reserves—a trend that is likely to continue.
"Central bank buying is, of course, important to the supply/demand dynamic for the metal, but is much more important in terms of sentiment toward the metal," says Brien Lundin, editor of Gold Newsletter. When central banks are "buying as heavily as they are, it provides cover and a rationale for other central banks to do the same."
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Russian central bank gold reserves stand at 2,219.2 metric tons, according to the World Gold Council, based on the latest data available in September from sources including the International Monetary Fund. China's holdings are at 1,936.5 metric tons.
Given the latest prices, with the most-active gold futures contract settling at $1,503.20 an ounce on Wednesday, and about 32,151 troy ounces in one metric ton, the value of Russia's gold reserves is at roughly $107 billion.
The moves are due to concerns about the outlook for currencies, including the dollar and the euro, says Mark O'Byrne, research director at GoldCore in Dublin. "While the gold tonnage demand from central banks in recent months has been significant and near records, gold remains a tiny fraction of most central banks'...foreign-exchange reserves," he says, adding that the trend is "sustainable and indeed may accelerate."
O’Byrne added that the risk of the trade war descending into a currency war may also be feeding central bank diversification into gold.
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