[LONDON] China and Russia have accounted for almost 85 per cent of central bank gold buying over the last two years as they moved to diversify reserves, while demand from most other central banks has faded, according to International Monetary Fund data.
Central bank buying has become a key component in global gold demand, growing from less than 2 per cent of overall consumption in 2010 to 12 per cent in 2015.
Over the last two years, China and Russia have driven the bulk of that alone, accounting for 1,084 tonnes of the around 1,280 tonnes of net central bank demand.
By comparison, only Kazakhstan and Iraq have added more than 40 tonnes of gold to reserves in that time.
China has made no secret of its desire to diversify its US$3.21 trillion in foreign exchange reserves - gold currently makes up only 2.2 per cent of those holdings, versus 75 per cent in the United States.
The People's Bank of China said last year investment in gold helped risk management.
"China has only a small proportion of its reserves in gold, with most of the rest in dollar-denominated assets," George Milling-Stanley, gold product manager at State Street Global Advisors and former head of government affairs at the World Gold Council, said. "They take the view that they're seriously over-exposed to the dollar, so they've been buying gold."
"Russia is doing its best to rebuild its gold reserves, and of course there is a political issue ... They're not that fond of the dollar, so it makes sense for them to build up gold."
Russia's central bank has said it buys gold to diversify its reserves, flagging up the metal's appeal as a reserve asset free from legal and political risks.
Sources also told Reuters in 2014 Russia's central bank was stepping in to absorb gold output that Western sanctions over the Ukraine crisis were making hard for miners to sell abroad.
"Countries like Brazil, Thailand and South Korea are not big gold producers, so when they purchased gold, it was in the international market," Metals Focus analyst Junlu Liang said.
"China and Russia could easily buy gold on the domestic market." The dominance of Russia and China contrasts with the breadth of central bank demand seen between 2009 and 2013.
Sizeable acquisitions were made by India, Mexico, South Korea and Thailand in that period, while half a dozen others made smaller purchases of between 10 and 50 tonnes. China and Russia were still dominant, but made only half of purchases.
A slide in gold prices from a record US$1,920.30 an ounce in 2011 to just under US$1,300 currently may be denting gold's appeal to central banks, analysts said, while a bounce in the dollar since the start of the financial crisis may also have lessened its appeal as a currency hedge.