Central banks scooped up more gold in 2012 than they have annually in nearly half a century as they sought to diversify reserves, the World Gold Council (WGC) said on Thursday.
Central banks bought 534.6 metric tons of the precious metal last year – the most since 1964 – led by Russia, Brazil and Iraq. Net purchases by central banks accounted for 12 percent of overall demand in 2012, compared with a 10 percent share in 2011.
"Countries actively adding to their official gold holdings remains heavily concentrated in developing markets, which partly reflects the scale of growth in the reserves of these markets over recent years," WGC wrote its latest quarterly report on gold demand trends.
"As the official reserves of these countries swell, with their heavy emphasis on U.S. dollar and euro-denominated assets, the need for diversification also increases."
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Central banks have been the net purchasers of bullion since the second quarter of 2009, amassing nearly 1,100 metric tons to their gold reserves since, almost reversing the 1,143 metric tons of net sales in the preceding three years, according to data from the organization.
Ric Spooner, chief market analyst at CMC Markets expects this trend to continue, noting that there is a, "broad tendency for the U.S. dollar to decline in value with the Federal Reserve's QE (quantitative easing) policies. Assets like gold are a hedge against debasement against foreign exchange reserves."
India's Number One
Despite widespread speculation that China would overtake India to become the world's largest consumer of gold in 2012, the South Asian nation retained the top spot, driven by a resurgence of demand during the second half.
Last year, consumption in India totaled 864.2 metric tons, compared with 776.1 metric tons in China.
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While India saw a decline in consumer purchases in the first six months of the year, as import duty hikes and a weak rupee took a toll, demand was revived in the second half of the year, supported by a rally in gold prices, religious festivals and buying in anticipation of further gold import duty hikes.
Last month, the Indian government raised the tax on gold imports to 6 percent from 4 percent, in an effort to curb demand for the yellow metal, which it has blamed for the rise in the country's current account deficit. The rush to make gold purchases in December means demand may stagnate in the first quarter of 2013, WGC said.
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In China, signs of economic improvement spurred demand for gold, commonly used as a hedge against inflation, however expectations are for a "steady firming of demand rather than for strong growth," the WGC said.
India and China remain the biggest consumers of gold jewelry, generating 56 percent of global demand in 2012. Gold jewelry made up 43 percent of overall demand for the precious metal in the same year.