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Central Banks’ Gold Reserves Impact Gold Prices

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Central banks’ gold reserves

Central banks hold ~20% of all the gold that has ever been mined. The sheer size of their holdings make it vital for gold investors to keep track of central banks’ gold reserves because they influence gold sales and purchases worldwide. In the process, they influence gold prices (GLD) as well as the price of gold stocks like Eldorado Gold (EGO), Yamana Gold (AUY), and Gold Fields (GFI). They also affect ETFs that invest in these stocks including the VanEck Vectors Gold Miners ETF (GDX). These three stocks form 11.7% of GDX’s total holdings.

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Russia increases its holdings

According to data released by the IMF (International Monetary Fund) on May 22, Russia’s gold holdings increased by 8.33 tons to 1,247 tons in April. This is the second straight month of buying for Russia. It had paused for three months. According to Dmitry Tulin, who manages monetary policy at the Russian Central Bank, “The price of it [gold] swings, but on the other hand it is a 100 percent guarantee from legal and political risks.”

This reflects Russia’s thinking behind increasing gold reserves. Since 2005, Russia’s gold reserves have nearly tripled. Last year, Russia added to its reserves for nine straight months until December 2014. It’s the fifth largest holder of gold bullion.

Kazakhstan’s increased gold reserves

Kazakhstan increased its gold reserves by about 2.44 tons to end at 200.8 tons for April. This is the 31st consecutive month that Kazakhstan has increased its holdings. The holdings have more than doubled in the past three years.

Apart from buying and selling trends, the strength of the US economy in the coming months will determine the direction of gold prices. In the next part of this series, we’ll see what the leading economic index for the US has to say about it.

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