Saudis hoard twice as much gold as thought

Did they recover reserves they had lent to the LBMA? And what good are official statistics that can change so much overnight?

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By Javier Blas
Financial Times, London
Sunday, June 20, 2010

http://www.ft.com/cms/s/0/e97c15bc-7ca1-11df-8b74-00144feabdc0.html

Saudi Arabia, the world's fourth-largest holder of foreign exchange reserves, is sitting on more than twice as much gold as previously thought, according to new estimates that point to the revival of bullion as part of emerging economies' official reserves.

The changes in Riyadh's reserves were revealed by the World Gold Council, the industry-backed body that regularly tracks official bullion holdings. According to the WGC, the Saudi Arabian Monetary Agency, the central bank, has gold reserves of 322.9 tonnes, more than double the 143 tonnes it had previously reported.

The central bank said in a footnote of its latest quarterly report that "gold data have been modified from first quarter 2008 as a result of the adjustment of the SAMA's gold accounts."

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Analysts said the rise in official gold holdings probably represented an accounting shift rather than fresh purchases. One possibility is that a large fraction of the country's gold was not considered until now part of the official reserves.

But without an official explanation, analysts were keeping options open. At current prices, the extra gold in Saudi Arabia's official reserves amounts to $7 billion (E5.6 billion, L4.7 billion).

The revelation could fuel gold's rally as it is a further sign that central banks are keen on gold, after two decades of selling their bullion. Gold prices hit a nominal record high above $1,260 a troy ounce on Friday. Adjusted for inflation, however, bullion is still a long way from its all-time high of more than $2,300 in 1980.

The WGC revelation about Riyadh's gold holdings comes just a year after China surprised the bullion market when it revealed its gold holdings were more than 1,000 tonnes, almost double what it had reported for years.

Analysts believe that central banks could be net buyers of gold this year for the first time in nearly two decades. India bought 200 tonnes of gold from the International Monetary Fund earlier this year, while Russia and others are purchasing bullion from domestic miners on a regular basis, official data show. European central banks, after more than a decade of hefty disposals, have all but stopped selling.

Riyadh is now the 16th largest gold holder, ahead of countries such as the UK and Spain. The US is the world's largest bullion holder with 8,133.5 tonnes.

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