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Central banks to keep buying gold – RBC

RBC weighs in on reserve buying and forecasts 2015 gold appetite by central banks.

The price of gold will keep getting support as central banks load up on more gold this year, RBC Capital Markets said in a report published Sunday.

RBC forecast appetite for gold by central banks, mostly in emerging markets, to hit 275 tonnes this year as compared to 409 tonnes last year.

That is historically very high.

“Overall, central banks have been net buyers of gold for 14 straight quarters to present, and the demand helped mitigate bullion’s losses in 2014,” RBC said. “We forecast the central bankers could purchase a further 275 tons in 2015, which compares to 409 tons in 2014, the second-largest increase in 50 years.”

In assessing China – which officially reports reserves of 1,054 tonnes – RBC assumes, as many, that the country has been piling up far more gold than publicly stated. Indeed, it puts China’s current reserves at 3,500 tonnes.

If so, that means China would be the third largest reserve holder of gold behind the US and Italy.

RBC also highlighted Russia’s appetite for gold. Russia’s central bank has been one of the largest buyers of gold among central banks doubling its position from 520 tonnes in 2008 to 1,208 tonnes in 2015.

RBC reckons the trend is set to continue.

“Under the current oil price environment, and given the geo-political and ruble liquidity risks the country is facing, we expect Russia to continue to accumulate gold and provide a support to the price.”

As other analysts and researchers have noted, RBC sees the low proportion of gold holdings in reserves relative to non-gold holdings as suggesting there is room for gold holdings to grow.

It also sees US dollar strength as increasing gold’s shine.

“We would note that another factor that appears to have contributed to the accumulation of reserves is the depreciation of local currencies against USD, which made gold a more attractive investment to hedge against local currency depreciation,” RBC said.

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