Central Bank Gold Holdings Expand at Fastest Pace Since 1964

March 18 (Bloomberg) -- Central banks added the most gold to their reserves since 1964 last year amid the longest rally in bullion prices in at least nine decades, data compiled by the World Gold Council show.

Combined holdings rose 425.4 metric tons to 30,116.9 tons, an increase worth $13.3 billion at last year’s average price, according to the data. India, Russia and China said last year they added to reserves. The expansion was the first since 1988, the data from the London-based council show.

Central banks, holding about 18 percent of all gold ever mined, are expanding their holdings for the first time in a generation as investors in exchange-traded funds amass bullion as an alternative to currencies. Holdings in the SPDR Gold Trust, the biggest ETF backed by the metal, are at 1,115.5 tons, more than the holdings of Switzerland.

“There’s clearly been a renaissance of gold in central bankers’ minds,” said Nick Moore, an analyst at Royal Bank of Scotland Group Plc in London. “It’s not just been central banks taking on gold, but a general shift for physical gold in the investment sector.”

Official reserves of central banks and governments may expand by another 187 to 218 tons this year, CPM Group forecast last month. The council’s data also includes the holdings of the International Monetary Fund, European Central Bank and other international and regional bodies.

Gold climbed 24 percent last year, reaching a record $1,226.56 an ounce in December. World holdings rose 527 tons in 1964 and climbed 832.7 tons the year before that, according to the London-based industry group.

‘At the Edge’

“Gold is quietly, at the edge, becoming the world’s second reservable currency, supplanting the euro and rivaling the dollar,” Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter today. “The trend shall continue months, if not years, into the future.”

Gold is up 2.7 percent this year and traded at $1,126 an ounce at 11:29 a.m. in London. The U.S. Dollar Index, a six- currency gauge of the greenback’s value, is up 2.7 percent this year after slipping 4.2 percent in 2009. Bullion typically moves inversely to the U.S. currency.

Higher prices for gold, especially in euros and sterling, may deter countries from adding further to reserves, RBS’s Moore said. Bullion climbed to a record 838.43 euros on March 5, Bloomberg data show.

“Central banks might feel somewhat embarrassed to be buying gold at records” in some currencies, Moore said. “When you have an asset trading at an all-time high, the temptation is not to purchase more.”

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

Last Updated: March 18, 2010 08:55 EDT