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UBS: Chinese, Other Central-Bank Buying Continues Although Pace Slowing

(Kitco News) - Central-bank buying of gold is likely to continue although at a slower pace, with China setting the pace so far this year, said UBS Thursday.

News organizations reported overnight that the People’s Bank of China boosted its holdings by 0.5% in March to 57.79 million ounces. The buying coincided with a $10.3 billion increase in China’s foreign-exchange reserves to $3.21 trillion, more than analysts were expecting, UBS said.

China has been consistently reporting gold buying over the last nine months.

“This persistent buying has offered an encouraging signal to the wider gold market, effectively
confirming that China values gold as a reserve asset and in a sense supporting the view that diversification remains a valid rationale, particularly for those central banks that have very little allocation to gold relative to their total reserves,” UBS said.

Nevertheless, UBS continued, “the slowdown in the pace of purchases is also noticeable.” The March Chinese buying amounted to around nine tonnes, down from 16 in January. First-quarter average monthly purchases were 12 tonnes, compared to 17 in 2015, the bank said.

“We expect this theme to be in place across the official sector this year – as FX reserves come off, the urgency to diversify is also somewhat diminished,” UBS said.

Analysts said there has been a lack of new players among central banks, with buying so far this year mainly coming from China and Russia, which added 35.1 and 32.5 tonnes, respectively, in the first quarter. Kazakhstan was a distant third with 3.8 tonnes.

UBS suggested the risk of central-bank selling of gold is low.

“We recognize that countries with heavy exposure to oil may have relatively higher risk of selling gold reserves to help fund the oil revenue shortfall, but we do not think this is a likely course of action,” UBS said. “We maintain the view that the official sector will remain net buyers of gold for some time.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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