Gold prices hit on Monday a fresh record high of almost $1,265 a troy ounce following the revelation that Saudi Arabia, the world’s largest oil exporter, is sitting on more than twice as much gold as previously thought, according to new estimates.
The disclosure points to the revival of bullion as part of emerging economies’ official reserves and comes as investors pour money into the yellow metal.
The weakness of the dollar following China’s decision to make the yuan more flexible, gave bullion further momentum, analysts said. A stronger yuan makes the cost of gold for Chinese buyer cheaper, potentially increasing demand. China is the world’s second largest gold consumer, after India. It is also the largest producer.
In early trade in London, spot gold surged to $1,264.9 an ounce, up 0.7 per cent from Friday’s last quote in New York. It later pared gains to trade at $1,258. Adjusted for inflation, however, bullion is still below its all-time high of more than $2,300 set in 1980.
Traders and bankers said hedge funds remain extremely bullish on gold because they believe that, sooner or later, the central bank’s recent massive monetary expansion would translate into inflation. Some hedge funds have internal forecasts above $1,300-$1,500 for the end of the year, bankers said.
The changes in Riyadh’s reserves were revealed by the World Gold Council, the industry-backed body which regularly tracks official bullion holdings. According to the WGC, the Saudi Arabian Monetary Agency, the central bank, has gold reserves of 322.9 tonnes, more than double the 143 tonnes it had previously reported.
The Saudi central bank, which holds the world’s fourth-largest holder of foreign exchange reserves, said in a footnote of its latest quarterly report that “gold data have been modified from first quarter 2008 as a result of the adjustment of the Sama’s gold accounts”. Sama did not respond on Sunday to calls seeking further comment.
Analysts said the rise in official gold holdings probably represented an accounting shift rather than fresh purchases. One possibility is that a large fraction of the country’s gold was not considered until now part of the official reserves.
But without an official explanation, analysts were keeping options open. At current prices, the extra gold in Saudi Arabia’s official reserves amounts to $7bn.
The WGC revelation about Riyadh’s gold holdings comes just a year after China surprised the bullion market when it revealed its gold holdings were more than 1,000 tonnes, almost double what it had reported for years.
Edel Tully, precious metal strategist at UBS in London, said on Monday that the updated reserve statistics from the WGC adds credence to her “belief that the official sector will be a net buyer of gold this year”. Central banks have being net sellers of gold over the last two decades due to heavy disposals in Europe.
The trend has now changed, however. India bought 200 tonnes of gold from the International Monetary Fund earlier this year, while Russia and others are purchasing bullion from domestic miners on a regular basis, official data show. European central banks, after more than a decade of hefty disposals, have all but stopped selling.
Riyadh is now the 16th largest gold holder, ahead of countries such as the UK and Spain. The US is the world’s largest bullion holder with 8,133.5 tonnes.
Additional reporting by Abeer Allam in Riyadh
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