Russia and Kazakhstan Add to Gold Reserves in May

Current Macro Factors Driving Gold and Silver Prices

(Continued from Prior Part)

Central banks’ gold reserves

Globally, central banks bought close to 119.4 tons of gold in Q115. This is almost the same as the amount purchased in Q114. According to the World Gold Council, or WGC, globally, nations will probably buy 400 tons to 500 tons of the metal in 2015. The reason, according to the WGC, is that “Many central banks remain exposed to a small number of key reserve currencies and look to gold as a hedge against volatile currency movements.”

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 these reserves.

They influence gold prices (GLD) as well as the price of gold stocks including Eldorado Gold (EGO), Yamana Gold (AUY), and Gold Fields (GFI). These reserves also affect ETFs that invest in these stocks including the Market Vectors Gold Miners ETF (GDX). These three stocks form 11.7% of GDX’s total holdings.

Russia the buyer

According to the latest central bank gold reserves data released by the International Monetary Fund on June 24, Russia’s gold holdings increased by 4.3 tons to 1,250.9 tons in May. This is the third straight month of buying for Russia, and it follows a three-month pause. According to Dmitry Tulin, who manages monetary policy at the Central Bank of Russia, “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 its 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 buys gold for 32 consecutive months

Kazakhstan increased its gold reserves by about 2.6 tons to end at 203.4 tons in May. This is the 32nd 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, another factor determining the direction of gold prices in the coming months will be the strength of the US economy. In the next part of this series, we’ll see what the leading economic index for the US has to say about this.

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Browse this series on Market Realist:

• Part 1 - US Economic Data, Other Factors That Affect Gold, Silver Prices

• Part 2 - US Dollar Rises on the Strength of Recent US Economic Data

• Part 3 - Why Gold Investors Should Watch Global Money Supply