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Central-Bank Demand for Gold Bars 'Set to Grow' in 2018

Return of China seen after 7-year low in official gold growth...
 
GOLD BARS held in reserves by central banks worldwide will keep growing in 2018 according to leading analysts, with the rate of purchases recovering from the slowest pace since 2010.
 
"Net official sector purchases are projected to drop 5% to a 7-year low of 370 tonnes this year," says the latest Precious Metals Weekly from specialist analysts Metals Focus.
 
But this drop "does not represent a sea change in sentiment towards gold among reserves managers," Metals Focus goes on, saying that "a desire to diversify away from largely US Dollar-denominated reserves will continue to make gold appealing.
 
"Geopolitical risks also remain a concern."
 
2016 already saw the smallest growth in official-sector holdings of gold bullion bars since 2010 according to competitor analysts Thomson Reuters GFMS, with net additions falling 42% from the year before to 258 tonnes on their data.
 
"Even as that was happening," GFMS said in last week's Q3 update to its annual Gold Survey, "we cautioned repeatedly that this was not the start of a change from the strong central bank buying that has prevailed throughout this decade."
 
Instead, the new report says, last year's drop was "a fluctuation...due in no small part to sales by the Venezuelan central bank...and hence the year on-year comparisons [now] show a sharp upturn so far in 2017."
 
Most notably for 2018, GFMS forecasts, foreign exchange reserves at the People's Bank of China "are rising again, albeit not dramatically, and it seems likely to us that sooner rather than later the PBoC will resume making purchases" after failing to report any new additions since October 2016.
 
"This will help to underpin the pace of global gold purchases."
 
Chart of China's non-gold FX reserves ($bn) vs. the gold price in Yuan per gram (right axis). Source: St.Louis Fed
 
Also looking at the rate of central-bank reserves demand for large gold bars, "Net buying from the official sector has posted successive losses since reaching a multi-decade high of 646 tonnes in 2013," says a separate report from the mining-backed World Gold Council.
 
Driving this slowdown compared wtih 2010-13, the Council says, has been a switch from widespread interest in buying gold amongst many smaller central banks towards an "increasing dependence on only two countries, China and Russia."
 
Both are major mining producers, with Russia's growing central-bank gold purchases linked by analysts to Western sanctions against the country's banks and corporations over the ongoing crisis in neighboring Ukraine after the 2014 annexation of Crimea.
 
Russia will end 2017 as the largest official buyers of gold bars for the 6th year in a row, according to GFMS, taking it very close to China's current reported holdings of 1,842 tonnes.
 
If Beijing doesn't return to reporting new gold purchases, GFMS says in its Q3 update, "We could be just 3-4 months away from Russia overtaking China and moving into the top five global gold holders."
 
Crisis-hit Venezuela, meantime, this month allowed a gold swap deal with Deutsche Bank to lapse according to an opposition politician, with its failure to repay the German investment bank $1.2 billion in cash meaning the loss of around 43 tonnes from its reserves on Metals Focus' analysis.
 
"This will be included in our estimates for gross official sector sales for Q4 2017," the consultancy says.
 
The world's 13th largest central-bank holder of physical gold bars just 5 years ago, Venezuela has already reported a halving of its holdings.
 
The Socialist state now stands in position 22 – behind the UK, Lebanon, Kazakhstan and the Philippines – as shortages of food and medicine precede what analysts widely believe will be a significant debt default by the government of Nicholas Maduro, starting as early as this week.

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