Countries prefer gold to paper

(April 25, 2012 -  by Amanda Cooper, Reuters)

ARGENTINA added to its gold reserves for the first time in nearly six years in September last year as the price hit record highs, mirroring the trend among emerging-country central banks to diversify further from paper currencies such as the dollar.

Data from the International Monetary Fund (IMF) yesterday showed Latin America’s third-largest economy added seven tons of gold to its holdings, bringing its reserves to 61,74 tons in September last year, when the spot gold price hit record peaks of $1920,30/oz.

This was the first addition by Buenos Aires to its gold reserves since February 2005, according to the IMF’s monthly international finance statistics report.

"To me, the most interesting central banks headline this morning is that of Argentina. It’s a new entry into the mix after a seven-year hiatus, its inflation is running at nearly 10%," precious metals strategist at UBS Edel Tully said.

"Also, much uncertainty exists surrounding its nationalization plans, and restrictions on international trade have implications for growth," she said. The fact that Argentina bought when gold was trading at record highs suggested that the central bank was more concerned about accumulating enough gold, rather than the price level, she said.

The gold price is up 4,7% this year, trading about $1630/oz, but has fallen by nearly 15% since early September.

Standard & Poor’s on Monday cut its assessment of the outlook for Argentina’s foreign debt to negative, citing policies that include a government push to seize control of energy company YPF from Spain’s Repsol. President Cristina Fernandez announced the YPF takeover last week.

The data also showed Mexico made its largest addition to its gold holdings in March in a year, raising its reserves by 16,81 tons to 122,58 tons.

Central banks around the world added nearly 500 tons of gold to their reserves last year, making them net buyers of bullion for the first time in 20 years.

Most notably, Mexico, South Korea, Thailand, the Philippines and Russia added heavily to their holdings, although smaller countries such as Colombia and Belarus were also active buyers.

Russia raised its holdings by 16,55 tons to 895,75 tons last month.