Argentina sets off hunt for central bank gold buyers

Argentina's purchase of gold this year - a positive signal for prices - has set off a hunt for more countries bucking a central bank trend to run down bullion reserves, analysts said on Thursday.
Industry body The World Gold Council said earlier on Thursday that IMF data showed Argentina had bought 42 tonnes of gold in the first half of this year, and that there might be an argument for cash-rich Asian central banks to secure bullion.
Argentina's Central Bank later confirmed that it bought the gold in its strategy to diversify reserves after the end of the peso's one-to-one peg against the dollar in early 2002.
A Central Bank official told Reuters on condition of anonymity that it had not yet decided if it would accumulate more gold.
"This is a step in the right direction but it's not a giant leap," HSBC analyst Alan Williamson said.
"The problem is that this is one relatively small central bank buying, albeit a significant amount...For it to be bullish we would need to see more than one central bank buying."
European central banks, under an accord reached earlier this year, raised the limit for their official disposals to 2,500 tonnes over five years with annual sales of 500 tonnes - further undermining gold's traditional role in financial markets.
Europe's so-called Central Bank Gold Sales Agreement replaces one struck to help stabilise the market in 1999, when gold was sinking sharply.
Analysts said the focus was now on Asia after market talk that China and perhaps other Asian countries might be looking to reduce their dollar holdings.
Gold, trading buoyantly around $406.00 per troy ounce, can be used as a dollar hedge as a weaker US currency makes the metal cheaper for non-US investors.
"There are constant rumours...If we were to see one of the really big holders of foreign exchange reserves from Asia putting a proportion of those into gold, there would be major positive implications for the gold price," John Reade of UBS Investment Bank said.
Dealers said the Argentina news was positive for sentiment in the bullion market but the price was still slavishly following euro-dollar moves.
"One would think that this is a bullish development but gold is being helped along by the euro at the moment, with good steady build-up seen on technical charts," John Cross of MKS Finance said.