Russia, Kazakhstan Extend Gold Purchases as Prices Tumble

Russia and Kazakhstan expanded their gold reserves for a seventh straight month in April, buying the metal to diversify assets even as prices slumped the most in three decades.

Russian holdings, the seventh-largest by country, climbed 8.4 metric tons to 990 tons, taking gains this year to 3.4 percent after expanding by 8.5 percent in 2012, International Monetary Fund data show. Kazakhstan’s hoard grew 2.6 tons to 125.5 tons, taking the increase to 8.9 percent this year after a 41 percent expansion in 2012, data on the website showed.

Gold plunged into a bear market April 12 and by the end of the following session had lost 14 percent, the biggest two-day drop since 1983. The drop was driven by some investors losing faith in the metal as a store of value, spurring record reductions from holdings in exchange-traded productsamid speculation that the global economy is recovering.

“Some central banks would have taken advantage of the lower prices to build their gold assets,” said Alexandra Knight, an economist at National Australia Bank Ltd. inMelbourne. “With the general mood in the market quite bearish, perhaps some others are factoring in the potential for lower prices and holding off purchases for now. But the longer-term trend for central banks to increase gold reserves remains intact.”

Gold for immediate delivery, which dropped to a two-year low of $1,321.95 an ounce on April 16, traded 0.4 percent higher at $1,391.43 at 10:53 a.m. in Singapore. Bullion has declined 17 percent in 2013 after advancing for the past 12 years.

Portfolio Diversification

Central banks bought 534.6 tons of gold last year, the most since 1964, and may add as much as 550 tons in 2013, the World Gold Council estimates. While central-bank purchases fell 5.2 percent in the three months through March, they totaled more than 100 tons for the seventh straight quarter, according to council data.

The banks are less attracted to bullion as an overall strategy of portfolio diversification and the price drop should not lure them away from a long-term policy of gold accumulation, according to HSBC Securities (USA) Inc.’s James Steel. Still, reserve managers tend to be conservative and expecting central banks to step in and support a falling market is unrealistic, Credit Suisse analysts including Ric Deverell wrote in a May 22 report.

Turkey’s holdings rose 18.2 tons to 427.1 tons in April, increasing for a 10th month as it accepted gold in its reserve requirements from commercial banks. Belarus’s holdings expanded for a seventh month, while Azerbaijan’s and Greece’s holdings climbed for a fourth month, according to the IMF data.

Mexico cut its gold reserves for a 12th month and Canada reduced holdings for a fourth month, the data showed.

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