Friday, 26 April 2013

Central banks buy gold and equities, UK economy rebounds

It looks like central banks were among the losers from the recent fall in gold prices. From Bloomberg:

Central banks bought the most gold since 1964 last year just before the collapse in prices into a bear market underscored investors’ weakening faith in the world’s traditional store of value...

Central banks are the biggest losers, with about $560 billion of value erased since gold reached a record $1,921.15 an ounce in September 2011...

Some people think central banks are not very good at timing markets.

“They sell at the wrong time and buy at the wrong time,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “They aren’t traders. They are looking at it as a long-term holding, as an ultimate reserve currency. With the benefit of hindsight, they tend to get it wrong more often than not.”

That may not be good news for stocks as central banks have apparently also been buying or are planning to buy equities. Again from Bloomberg:

Central banks, guardians of the world’s $11 trillion in foreign-exchange reserves, are buying stocks in record amounts as falling bond yields push even risk- averse investors toward equities.

In a survey of 60 central bankers this month by Central Banking Publications and Royal Bank of Scotland Group Plc, 23 percent said they own shares or plan to buy them. The Bank of Japan, holder of the second-biggest reserves, said April 4 it will more than double investments in equity exchange-traded funds to 3.5 trillion yen ($35.2 billion) by 2014. The Bank of Israel bought stocks for the first time last year while the Swiss National Bank and the Czech National Bank have boosted their holdings to at least 10 percent of reserves.

Still, both gold and stocks rose on Thursday, with the STOXX Europe 600 in particular rising 0.8 percent for its fifth consecutive day of gains.

Positive economic reports from Europe helped buoy investor sentiment.

In the UK, the economy grew 0.3 percent in the first quarter, reversing the 0.3 percent decline in the previous quarter and thus avoiding a recession.

In Germany, the government raised its forecast for growth in 2013 to 0.5 percent from 0.4 percent.

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