JEDDAH: Central banks in several regions of the world are building up their gold reserves, based on available evidence, published report said Friday. It claimed that though official purchases were published, "a large part of these Central Bank purchases of gold bullion are not disclosed." US dollar holdings and US dollar-denominated debt instruments are in effect being traded in for gold, which in turn puts pressure on the US dollar, it further said. In turn, both China and Russia have boosted domestic production of gold, a large share of which is being purchased by their central banks, the report added. Central Banks in the Middle East are also building up their gold reserves, while reducing their dollar forex holding, Global Research said in the report. Despite a high interest in gold, GCC states maintain less than 5 percent of their total reserves in gold. Compared to the ECB, which holds 25 percent of reserves in gold, that leaves a lot of room for growth. Dubai International Financial Centre Authority (DIFCA) economists released a report calling for regional countries to build gold reserves, according to The National. GCC states should boost their foreign reserve holdings of gold to help shield their billions of dollars of assets from turbulence in global currency markets, DIFCA said. Diversifying more of their reserves from US dollars to the yellow metal would help to offer central banks in the region higher investment returns, said Dr Nasser Saidi, chief economist of DIFCA; and Dr Fabio Scacciavillani, director of macroeconomics and statistics at the authority. "When you have a great deal of economic uncertainty, going into paper assets, whatever they may be - stocks, bonds, other types of equity - is not attractive," said Dr Saidi. "That makes gold more attractive." Declines in the dollar during recent months have dented the value of GCC oil revenues, which are predominantly weighted in the greenback. Moreover, the latest rankings of gold reserves show that, as of mid-December, the United States remains the top country and China is ranked sixth with 1,054 tons of reserves, the World Gold Council announced recently. China's gold reserves rank 6th worldwide. Developing countries and regions, including Saudi Arabia and South Africa, have become the main force driving the gold reserve increase, the report said. Russia climbed to eighth place because its gold reserves increased by 167.5 tons since December 2009. The top 10 in 2010 remains the same compared to the rankings of the same period of last year. Saudi Arabia is in the top 20. The International Monetary Fund (IMF) and the European central bank are the major gold sellers, and the IMF's gold reserves decreased by 158.6 tons. However, Global Research report noted that actual purchases of physical gold are not the only factor in explaining the movement of gold prices. The gold market is marked by organized speculation by large-scale financial institutions, it said. The gold market is characterized by numerous paper instruments, gold index funds, gold certificates, OTC gold derivatives (including options, swaps and forwards), which play a strong role, particularly in the short-run, the report said.
