New IMF figures show at current rate central banks will buy almost 700 tonnes of gold this year

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Gold slipping over 3% over the course of March, averaging $1,676 for the month, prompted central banks to stock up on the yellow metal IMF data showed on Tuesday.

Led by Mexico and Russia, central banks from 11 countries and the Eurozone added a combined 57.9 tonnes of gold in March.

Mexico raised its reserves by 16.8 tonnes, Russia added 16.5, Turkey 11.5 tonnes, Kazakhstan 4.3 tonnes, Ukraine 1.2 tonnes, while other ex-Soviet republics including Tajikistan and Belarus added less than half a tonne.

In percentage terms Argentina made the biggest bet on gold, upping its reserves of gold by more than 10% to 61.7 tonnes over the month.

The only sellers were the Czech Republic which reduced its bullion reserves by 4,500 ounces.

Bullion purchases by central banks have provided a strong underpinning for the gold price. The world’s central banks added a combined 439.7 tonnes last year – an almost fifty year high.

Bloomberg quotes Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland:

“We expect that the recent trend of the official sector being a net buyer will continue in the medium and long term. Gold will continue to be a preferred central bank reserve asset. It is currency protection and stabilization.”

Bullion bulls are now focusing on any announcements that may emanate from the US Federal Reserve’s two-day policy meeting that started today.

After failing to scale the psychologically important $1,800 an ounce bar at the end of February, gold has taken a few hard knocks on the way to its current trading level of around $1,640.

The spikes downward have all been thanks to Ben Bernanke and the US Federal Reserve and the fortunes of the precious metal seem increasingly linked to monetary policy in the US. If there is word of a third round of quantitative easing it could be very positive for gold.

(And for Bill Gross, founder of Pimco which oversees more than a $1 trillion in assets, who have placed a $133 billion bet that QE3 will happen.)