One Wise Central Bank

The following headline from a Dow Jones Newswire Service report says it all. You can be assured that many other Central Banks are also seeing the yellow metal in a favorable light.

Note the relatively low levels of gold in the reserves of Brazil, a rising economic powerhouse and an increasingly important buyer of US Treasuries. Look for this nation to begin an acquistion process of gold in the months and years ahead.

DJ Argentina's Gold Bet Pays Off As Metal Nears New Highs

  By Ken Parks
  Of DOW JONES NEWSWIRES


  BUENOS AIRES (Dow Jones)--The Central Bank of Argentina's decision to add
gold to its foreign reserves nearly seven years ago has paid off, with the
precious metal trading close to the record highs observed in late 2010.

  The central bank reported 9.41 billion pesos ($2.33 billion) of gold on its
balance sheet at the end January, equivalent to nearly 4.5% of its total
foreign-currency reserves of ARS210.51 billion, according to data published on
its website. A year earlier, those holdings were valued at ARS7.28 billion.

  Argentina's central bank significantly increased its holdings of gold during
the first seven months of 2004, when it purchased 1.76 million troy ounces for
an average price of $398.87 per ounce.

  According to the institution's most recent annual report to Congress, the
central bank held 1.76 million ounces of gold at the end of 2009.

   Alfonso Prat-Gay, who was president of the central bank from December 2002
until September 2004, said that at that time bank staffers opposed the purchase
of gold because they feared the political and legal repercussions had the
country's creditors been able to embargo the transaction. Argentina defaulted
on about $100 billion in sovereign debt in 2001.

  "The bank had gotten rid of all of its gold in the 1990s and at that moment
it didn't have any exposure to gold. It seemed to us a prudent policy to have
5% of our liquid reserves in gold and at the time we were prepared to increase
that position in the future," he said in an emailed statement to Dow Jones
Newswires.

  Citigroup Inc (C) expects gold to rise 7.8% this year to $1,445 an ounce
after averaging $1,340 last year. If correct, that could make gold one of the
highest-yielding assets in the Central Bank of Argentina's foreign-reserve
holdings this year, with benchmark interest rates in the U.S. and Europe still
at rock bottom lows.

  Gold is viewed by some investors as a hedge against inflation and volatile
currencies. Earlier this month, gold inched closer to becoming a currency after
U.S. banking giant J.P. Morgan Chase & Co. (JPM) said it would allow clients to
use the precious metal as collateral in some transactions in which banks
typically accept only U.S. Treasury bonds and stocks.

  Barrick Gold Corp. (ABX, ABX.T), the world's largest producer of the precious
metal, said in an interview published Feb. 1 in the Wall Street Journal that it
expects central banks to move more of their monetary reserves into gold this
year due to concerns about the value of their U.S. dollar holdings amid a
sluggish U.S. economy and rising government debt.

  "Nothing in this world is safer than physical gold and its opportunity cost
has never been as low as it is today given risk-free interest rates are at
zero. All central banks should have an important exposure to gold. In my
opinion 20% of reserves should be a floor," said Prat-Gay, who today is a
congressman and a member of the Coalicion Civica party.

  A central bank spokesman contacted by Dow Jones Newswires said the monetary
authority doesn't comment about its reserve policy.

  Although gold represents only a small percentage of its reserves, the Central
Bank of Argentina's holdings are among the largest of its peers in Latin
America.

  The Central Bank of Peru held 1.1 million troy ounces, valued at $1.48
billion, at the end of January, or about 3.3% of its reserves. Brazil's central
bank owned 1.08 million troy ounces of gold worth about $1.43 billion,
equivalent to just 0.5% of its total reserve assets.

  Chile's central bank had less than 0.05% of its reserves in gold with
CLP5.121 billion ($10.7 million) on its balance sheet at the end of January.

  Meanwhile, the Bank of Mexico held about 230,000 troy ounces at the end of
December, with the value of its holdings of physical gold and gold swaps
totaling $322 million, a drop in the bucket compared to its foreign reserves of
$120.59 billion.


   -By Ken Parks, Dow Jones Newswires; 54-11-4103-6740, ken.parks@dowjones.com


  (END) Dow Jones Newswires

  02-25-11 1410ET

  Copyright (c) 2011 Dow Jones & Company, Inc.