October 7, 2010 / 3:51 PM / 9 years ago

Central banks to be net buyers of gold in 2011 - WGC

LONDON (Reuters) - Central banks are expected to be net buyers of gold in 2011 for the first time in nearly two decades, the World Gold Council said on Thursday.

Gold bars are pictured at the Ginza Tanaka store in Tokyo October 23, 2009. REUTERS/Issei Kato/Files

“For next year, we will probably see a scenario where central banks are net buyers (of gold) for the first time in something like 17 years,” Marcus Grubb, the WGC’s managing director for investment, told delegates at the World Gold Investment Congress in London.

He said central banks had been net buyers of 7.7 tonnes of gold in the second quarter of 2010. Before 2009, they were net sellers of an average of 400 tonnes per year.

Gold prices hit a record high above $1,360 an ounce on Thursday, driven by weakness in the dollar, which stemmed from growing expectations for the Federal Reserve to keep U.S. interest rates low to support economic growth.

The prices have risen by more than 20 percent so far this year, supported in part by central bank moves to become aggregate buyers of gold.

A trend has emerged for some central banks in Asia — most recently Thailand and Bangladesh — to add to their gold reserves.

“We have lots of central banks in Asia that have tiny weightings of gold,” Grubb said.

He said Asia currently holds only 2.4 percent of its foreign exchange reserves in gold. Raising this by 1 percent of reserves would necessitate the acquisition of 850 tonnes of gold, he said.

Meanwhile, central banks in Europe, where much of the current official holdings are concentrated, in recent years have cut back heavily on sales.

Grubb said he saw strength in gold prices persisting as uncertainty over the global economic outlook continued to unsettle investors, saying the rise in prices was backed up by firm demand from major markets India and China.

Reporting by Jan Harvey, editing by Jane Baird

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