Michael Lombardi, lead contributor to Profit Confidential, believes that central banks are hungry for gold bullion and that there is an overwhelming amount of evidence that suggests gold bullion prices are about to head higher. Lombardi reports that the demand for gold bullion from central banks is increasing, particularly in China, as the country, in Lombardi’s opinion, plans to buy more gold and dump U.S. dollars.

“Central banks’ appetite for gold bullion doubled in the second quarter of 2012,” notes Lombardi. “The central banks bought 157.5 metric tons of gold bullion in the second quarter.”

In the article “Actions Speak Louder Than Words: China Set to Buy More Gold,” Lombardi points out that central banks, in general, need to diversify their foreign exchange reserves; however, this means that these banks are not relying as much on the U.S. dollar.

Instead, Lombardi claims China is increasing its purchase of gold bullion. He notes that gold bullion accounts for 1.6% of China’s $3.2-trillion foreign exchange reserve, compared to the international average of about 10.0% of foreign exchange reserves in gold bullion.

“There is speculation that China’s central bank is planning to buy at least 5,000 to 6,000 metric tons of gold bullion over the next two years and it will start purchasing that gold bullion this year,” says Lombardi.

Lombardi suggests that the Chinese central bank will be buying more than a two-year supply of gold bullion produced, if the total gold bullion production of the mines is 2,602 tons per year.

“In the first two quarters of 2012, China’s inflow of gold bullion from Hong Kong increased six times,” reports Lombardi. “Imports of gold bullion from Hong Kong were higher by 65% in April, compared to March.”