Russia And Kazakhstan Purchasing Gold During Its Five-Year Low Bets

Russia and Kazakhstan have been diversifying assets by buying gold after its prices contracted by a record pace. The two countries have kept buying gold for a seventh month in a row with Russia expanding its holdings this year by 3,4%, following an 8,5% increase in 2012. Kazakhstan increased its reserves by 8,9% this year, following an expansion of 41% in 2012. As many investors lost faith in gold as a safe haven for preserving wealth and cut their holdings in gold and gold-backed ETPs like George Soros, prices slumped with a record pace, which gave an opportunity for others to buy, lured by the attractive prices. This and speculations the Fed will continues with its Quantitative Easing program applied upward pressure on the precious metal, which advanced 2% last week.

Alexandra Knight, an economist at National Australia Bank Ltd. in Melbourne. said for Bloomberg: “Some central banks would have taken advantage of the lower prices to build their gold assets. With the general mood in the market quite bearish, perhaps some others are factoring in the potential for lower prices and holding off purchases for now. But the longer-term trend for central banks to increase gold reserves remains intact. We expect the trend of central bank buying to continue, especially in the emerging economies. While expectations are for lower prices at the end of the year, physical demand, especially in Asia, has been very supportive.”

Turkey is also on the list of countries, which have expanded their gold reserves. Turkeys holdings increased by 18,2 tons to 427,1 tons in April, a tenth straight month rise. Belaruss holdings increased for a seventh month and Azerbaijans and Greeces reserved gained for a fourth month in a row.

China’s gold demand increased in the first quarter by 20%, reaching 294,3 metric tons according to a report by the World Gold Council. Purchases of bars and coins in China grew at a faster pace than jewelry and more than doubled the five-year quarterly average. The record consumption is based on a renewed confidence in China’s economic prospects, although JPMorgan Chase & Co. cut its forecast for the Asian nation’s GDP growth for 2013. The industry group said: “Chinese investors, discouraged by the weak domestic stock market, increasingly relied on gold to fulfill their investment needs. The announcement in February of impending controls to be placed on the property market further emphasize gold’s investment properties going forward.” The U.S. Mint sold 209 500 ounces of gold last month, the most since December 2009.

Nic Johnson who helps manage $30 billion of commodity assets at Pacific Investment Management Co., said for Bloomberg: “Gold is a diversifying element to people’s portfolios. The liquidation is more institutional in nature, so I think investors very much view gold in the same light as they did before. Volatility will decline back to historic levels.”