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Central Banks Boost Gold Holdings as Risk Rises


Jan. 29 2016, Updated 2:07 p.m. ET

Central banks’ gold demand

The slump in the price of gold has brought investors all over the world closer to their much-loved asset. As gold, a known haven asset, became comparatively cheap in 2015, central banks showed a keen interest.

Increased volatility in the world markets has caused the central banks to invest their money in haven assets. Central banks as a whole have added 175 tons of gold to their official reserves.

The Chinese and Russian central banks have been stashing gold in the past year. According to reports by the World Gold Council, Russia added 144 tons in total to its official reserves, whereas China added almost 50 tons in the third quarter alone. Kazakhstan, Jordan, and the Ukraine also added 7.8 tons, 7.5 tons, and 3.1 tons, respectively, to their official reserves. Above is a chart that shows gold holding patterns in the second quarter of 2015.

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The recent commodity market rout has forced emerging countries to secure their funds in assets that may not lose value as fast as their home currencies. Like gold, the US dollar seems to be a haven asset amid the current market rout. Another haven currency is the Japanese yen, which has also gained value alongside gold and the US dollar.

The recent surge in precious metals has buoyed mining-based ETFs such as the VanEck Vectors Gold Miners ETF (GDX) and the Direxion Daily Gold Miners ETF (NUGT). These two ETFs have risen 7.4% and 23.1%, respectively, during the last five-trading days.

Mining-based equities New Gold (NGD), Primero Mining (PPP), and Newmont Mining (NEM) have been some of the best performers. These three have risen 24.4%, 20.6%, and 17%, respectively, on a five-day-trailiing basis. Together, they make up 8.3% of the price changes in GDX.


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