Central Banks Sit on Their Bullion Reserves

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". . .falling central bank sales 'might put a floor of some kind under gold, near $500 or so.'"

The world's major central banks, which hold more than 15% of above-ground gold, are expected to reduce their sales or lending of their bullion reserves this year, potentially restricting supplies and putting a floor under gold prices.

Several precious metals consultancies and the industry's main trade group anticipate total sales from major central banks such as France and Switzerland will decline again this year. One estimate projects sales could tumble to their lowest level in at least a decade.

Fewer sales mean gold supplies, which have been retreating in recent years as mining production has weakened, are likely to keep falling short of demand.

As long as investor appetite stays strong - and that's a big question mark, of course - this trend should support prices over the long term.

"Falling central bank sales have been a part of the gradual improvement in the overall balance between demand and supply in the gold market," said George Milling-Stanley, managing director of the official sector at the producer-funded World Gold Council.

Jon Nadler, senior analyst at Kitco Bullion Dealers, said falling central bank sales "might put a floor of some kind under gold, near $500 or so."

Analysts also anticipate official holders such as central banks will lend less of their reserves, keeping with a trend of recent years. Some analysts say central banks' loans of their reserves to mining companies and private banks contributed to a slump in gold prices in the second half of last year.

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