maandag 30 januari 2012

Central banks shifting to gold

There has been much talk about central banks becoming net buyers of gold since the start of the economic crisis in 2008. I want to elaborate on that.

The world gold council (WGC) yearly reports on the amount of central bank gold sales. As of 2010, central banks have shifted from net sellers to net buyers of gold (Figure 1). And this has only happened recently! As we look at history, during the inflationary years of 1980, central banks were buying gold. Then a period of gold selling occured from 1989 till 2009 where gold went into a bear market. Central banks only shifted to buying gold since 2010. Which means we are going straight back into a bull market of gold.

Central bank net buyers of gold
Figure 1

The WGC expected growth in gold buying from central banks to continue throughout 2012. The projected growth of central bank gold buying was projected to be 336 tonnes of gold per year in 2011 (Figure 2). Their predictions were right as central banks added 450 tonnes during 2011.

increase gold central banks
Figure 2

By far, the increase in interest in gold is the highest within the sector of central banks as opposed to investment, bars, coins and ETF's (Figure 3).

gold holdings central banks
Figure 3

The top among those countries that increased their gold holdings in 2011 are: Mexico, Russia, Thailand, Bolivia, Korea (Figure 4). More recently, we see activity from Mongolia and Kazachstan.

central banks increase gold holdings
Figure 4


Conclusion: Central banks know there is something going wrong with our fiat currency system. Otherwise they wouldn't shift to buying gold, which started coincidentally after 2008: the year of the global financial crisis where money supply exploded. I suggest that we investors follow the big guys into buying gold, you don't want to be left behind.

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