The IMF reported Wednesday that the Banco Central do Brasil has increased its gold holdings for the second straight month, to the highest level in 11 years, as Latin America’s biggest economy looks to diversify its vast international reserves.
Brazil’s aggressive efforts to weaken its currency by buying dollars – about $132 billion since the beginning of 2008 – have left the country with the sixth biggest international reserves in the world, about 80% of which is denominated in the US currency.
However, recent turmoil in currency markets and concerns over the global financial crisis and fiat currencies in general has given Brazil’s authorities even more reason to diversify their holdings.
It has frequently stated its intention to diversify assets and reduce its exposure to currency risk.
Recent sharp weakness in Brazil’s real (see table) and systemic risks are leading central banks, including the BCB to diversify into gold.
Brazil raised its gold holdings by 17.2 tonnes in October to 52.5 tonnes, the highest level since January 2001. The move comes on the back of Brazil’s 1.7 tonne increase in September, the country’s first significant gold purchase in a decade.
In December last year, 83.5% cent of the central bank’s $352 billion reserves was held in increasingly risky government bonds, 15.6% was in other bonds and bank deposits while only 0.8% of reserves was held in other asset classes such as gold.
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