Government Funds Reported Buying Gold to Hedge Dollar's Decline

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State-owned sovereign wealth funds are beginning to diversify their investments into commodities, potentially having a significant impact on international raw material prices because of their immense resources.

State-owned sovereign wealth funds are beginning to diversify their investments into commodities, potentially having a significant impact on international raw material prices because of their immense resources.

Many SWFs draw their income mainly from raw materials, such as crude oil, and they are now seeking to reinvest this cash back into the commodities market.

According to commodities bankers, the total investment of SWFs in natural resources is still limited, at below 5 per cent of their total allocations. But with worldwide state reserves above $3,000 billion, according to Deutsche Bank, any movement into the relatively small commodities markets could influence prices.

"While macro-data on sovereign money is elusive, anecdotally we see meaningful flows into commodities from the Middle East, Europe and Asia," said Katherine Spector, head of energy strategy at JPMorgan in New York.

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