Demand for gold rises as central banks diversify reserve holdings

Demand for gold may rise as central banks and sovereign funds are likely to replace US dollar and euro holdings with the precious metal amid the uncertainty caused by the global financial crisis, a report issued by the Official Monetary and Financial Institutions Forum said on Friday.

China may decide to increase the percentage of gold holdings in its monetary reserves in the next few years, said the report, an analysis of the world monetary system commissioned by the World Gold Council.

Demand for gold is likely to rise amid the uncertainty about the stability of the US dollar and the euro, the main assets held by central banks and sovereign funds, it added.

China almost doubled its gold reserves in the last five years. The country had holdings of 1,054 metric tons in July 2012 and is now the sixth-largest holder of monetary gold.

In 2011, gold accounted for 14.4 percent of the world's total monetary reserves.

In a country-by-country comparison, the figure was 1.6 percent in China, while it was 74.5 percent in the United States, 71.4 percent in Germany and 71.1 percent in France, according to data from the World Gold Council and the International Monetary Fund.

China holds the world's largest foreign exchange reserves, which were worth more than $3.31 trillion by the end of 2012, according to figures from the People's Bank of China, the country's central bank.

The amount is so large that China has no other currency options than holding US dollars and euros, the report said.

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