Brazil Stocks up on Gold

CEIC Brazil Data Talk: The Central Bank of Brazil doubled its gold reserves holdings over a three month period to November 2012. Its gold reserves measured in fine troy ounces rose from 1.08 million during August 2012 to 2.16 million during November 2012. The gold purchase increased the value of its official reserve assets to USD3.73 billion in November 2012 from USD1.78 billion during August 2012. Large scale monetary stimuli across major economies and the resulting increase in cheaper money have helped spur the official reserves of various central banks in developing countries. The Central Bank of Brazil has sought to avoid excessive appreciation of the Brazilian Real, which appreciated to a high of BRL1.563/USD in July 2011, though it has since receded to approximately BRL1.984/USD as of March 2013. Brazil’s official reserve assets rose by more than 50% from the end of 2009 to mid-2012 (culminating in reserves worth USD373.74 billion as of February 2013) as the central bank sought to avert excessive appreciation of the Real through large scale purchase of foreign currencies. However, many central banks in emerging economies have sought to diversify their reserves into other asset classes in the light of higher currency risks. This has been further supported by the relatively strong appreciation of gold prices, further prompting the Brazilian central bank to increase gold holdings; gold prices grew steadily from the middle of 2009 to the beginning of 2012 as large scale monetary stimulus during the period increased the threat of long-term inflation. While gold continues to account for less than 1% of Brazil’s total official reserve assets (0.92% as of February 2013), the increase in gold reserves during September-November 2012 was notable as the first major increase since official reserve assets declined during the end of the 1990s. As developed economies (US, Japan, Euro Area, among others) mull greater monetary stimulus, central banks in developing economies are likely to seek ways to diversify further their official reserves assets. This may provide some support to gold prices for the time being, with demand gradually petering out when the global economy begins its recovery in earnest. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Bruno Vasconcelos - CEIC Analyst Back to Blog
17th April 2013 Brazil Stocks up on Gold

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