New Delhi / Beijing: Asian central banks appear to be in little rush to follow India’s lead and make big purchases of gold given its high market price and the availability of cheaper domestically produced gold.
The relative illiquidity of gold, the small size of the gold market and difficulty buying in large quantities may also deter central banks from emulating the Reserve Bank of India, which bought 200 tonnes of gold from the International Monetary Fund (IMF) at an average price of $1,045 (around Rs49,220) an ounce.
India’s deal, revealed this week, surprised markets, sent gold to record highs and prompted speculation that other central banks would buy gold to diversify reserves in the face of a declining dollar, with China cited as an obvious buyer given its vast dollar holdings.
The IMF is selling another 200 tonnes of gold.
Central banks in Japan, South Korea and Australia have shown little recent inclination to buy gold overseas.
“We have no plans to buy gold. We don’t have a lot but we have enough,” Bank of Thailand governor Tarisa Watanagase said in an interview on Thursday. “Gold is a secure asset but historical statistics show that, excluding its speculative side, it yields a low, long-term rate of returns from collateral fees.”
Even at $1,000 an ounce, all the gold bullion in the world is worth no more $1 trillion, or less than half of China’s $2.27 trillion in currency reserves, said Zhang Yuyan, who heads the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, the government’s top think tank. “In addition, its liquidity is poor, it pays no interest and the cost of storage is high,” Zhang told reporters on the sidelines of a forum organized by the Economic Information Daily.
When gold prices were low, there was talk that China would buy more gold, but it did not happen, he noted. “From the point of view of diversifying FX (foreign exchange) reserves, you can spend part of your money on gold; but if you want to increase the share of gold significantly, especially when prices are so high—it’s unnecessary,” Zhang said.
China, the world’s top producer and consumer of gold, is widely assumed to still be buying domestic gold production after revealing in April that it held 1,054 tonnes of gold, a jump of 76% from its last word on the subject six years earlier.
“It’s cheaper for us to buy gold from the Chinese market, but it doesn’t help diversify our huge foreign exchange reserves,” said a senior Chinese central bank official, although one with no direct authority over gold buying. “Having said that, I think China still should buy some IMF gold this time, and it might indeed do so, but it’s unlikely to take all the 200 tonnes that are left as the price is obviously not particularly appealing,” the official said on condition of anonymity. “It would be a symbolic purchase, but better than nothing.”
Based on past experience, other major central banks in the region seemed unlikely to dramatically ratchet up offshore gold purchases anytime soon.
South Korea’s central bank holds just 0.03% of its total foreign reserves, the sixth largest in the world, in gold.
During a parliamentary audit last month, a few lawmakers proposed the Bank of Korea consider expanding gold purchases. But its governor, Lee Seong-tae, said it would not be easy practically for the bank to suddenly increase gold holdings because of the market impact.