International Monetary Fund data for June on Wednesday showed Thailand bought gold for the second time this year, raising its reserves by nearly 19 tonnes to over 127 tonnes, while Russia bought another 5.85 tonnes, bringing its reserves to 836.7 tonnes, the world’s eighth largest official stash of the metal.
Gold is set for a 17 percent gain in 2011, which would mark an eleventh successive year of price rises.
This increase has been driven largely by the U.S. Federal Reserve’s ultra-low monetary policy and concern that slow growth and the burden to the economy from the country’s debt could derail the recovery process of the last two years.
Gold is on course for its strongest quarterly performance since the second quarter of last year.
Holdings of gold in exchange-traded products rose for an eighth day, to their highest level this year, after an inflow of more than half a million ounces into the world’s largest bullion-backed ETF, the SPDR Gold Trust , which is now showing a net inflow for the year for the first time.
“The lack of a decent gold pullback has left many investors feeling frustrated and patience for a better buying opportunity is now wearing quite thin, which is why gold has attracted very decent buying this week,” said UBS strategist Edel Tully in a note, adding the size of the speculative position in U.S. gold futures posed a downside risk to gold.
“But given that these are not ordinary times, ordinary rules do not apply,” she said, adding that the bank had raised its three-month price forecast to $1,850, from $1,600.
In other precious metals, silver hovered near three month highs, trading 0.2 percent higher on the day at $40.88 an ounce, while platinum and palladium fell.
Spot platinum was last down 0.6 percent at $1,780.00 an ounce, while palladium was down 2.5 percent, having released earlier gains, to trade at $801.83 an ounce.
US Debit Issues
The U.S. economy is also likely to lose its top-notch credit rating as ratings agencies are increasingly discomfited by the weight of the twin trade and budget deficits and the country’s patchy growth.
A downgrade will almost certainly push up yields on U.S. Treasury notes as their value falls, which could prove unwelcome to the major investors in U.S. debt such as the Chinese government, which holds nearly $900 billion in Treasuries.
The trend among central banks, particularly those with large foreign exchange holdings, to diversify some of their portfolios into gold from currencies has been well established over the last couple of years.
“The market generally expects central banks with growing reserves and small gold holdings to buy gold,” said Jesper Dannesboe, senior commodity strategist at Societe Generale.”
“So I don’t think that is particular surprising, but it does support the bullish story (for gold),” he said.
Central banks are expected to remain net buyers of gold this year and the most likely buyers will be those with the biggest reserves and relatively small bullion holdings, such as China.
The Chinese central bank is the sixth largest official owner of gold, yet its holdings account for just 1.6 percent of its $2.5 trillion total reserves.