Gold on Tuesday was inching its way back to the $1,200 an ounce, a level it hasn’t strayed too far from for the better part of three months. A new research note by anlyst Simona Gambarini of Capital Economics suggests official sector buying can take much of the credit for establishing something of a price floor for the metal this year.
During the first quarter this year, the World Gold Council estimates that 120 tonnes of gold were added to global central bank reserves. Central banks have upped their share of overall gold demand from around 2% in 2010 to as much as 14% last year and in 2013. Just to up gold as a share of forex reserves to 5% central banks in emerging economies need to buy 8,000 tonnes
Gambarini expects this trend to strengthen adding that “any emerging market central bank looking to reduce exposure to the dollar still has few credible alternatives to gold”.