Official-sector gold demand for April and May totaled some 24 tons according to preliminary data from the International Monetary Fund. This is roughly 10 percent less than the same two-month period last year.
However, I suspect a few central banks either have not reported and/or may have recently resumed or accelerated their long-term gold acquisition programs.
Moreover, It is likely that some prospective central-bank buyers have been holding off, waiting for an indication that gold prices have hit a bottom.
More Than Meets the Eye
It is also possible that one or another official buyer have yet to report their April-May gold acquisitions . . . and, significantly, the data exclude purchases by non-reporters, most notably the People’s Bank of China that alone may have bought eight to 10 tons each month.
I also suspect that one or two of the wealthy Gulf states may have surreptitiously purchased a few tons, but are holding this metal in their sovereign wealth funds, royal family accounts, or in some other government account not considered “official reserves” for reporting purchases.
Most central banks that have been acquiring gold in the past few years are doing so “defensively.” They are greatly underweighted in gold and over-weighted in U.S. dollars, euros, Swiss francs, and other old-world currencies - and are buying gold simply to reduce portfolio risk through diversification.
Strategic Motives
However, both Russia and China — each acting independently — are accumulating gold reserves for strategic geo-political motives.
They each wish to enhance their respective currency’s global appeal and status as reserve assets and as settlement currencies in international trade and finance . . . and, in the very long run, share top billing with, if not replace, the U.S. dollar as the world’s leading currency.
