Casey told me in January,
"The only thing that scares me is that central banks are buying a lot of gold; they're historically contrary indicators." When it comes to buying
gold, central banks have such
a poor timing record that
they're frequently joked about as a contrary indicator.
dislike referring to
tonnes of gold instead of ounces.
Gold is priced by the ounce. But certain market players, especially central banks, report gold transactions in tonnes. One metric ton (tonne) equals
32,150.7 troy ounces.
have been buying, quite literally, tonnes of it. Consider the following:
in 2011 exceeded 455
tonnes. This was only
the second increase since
1988 (the first in 2010) and the largest since 1964.
has added over 123 tonnes since
last October, buying
29.7 tonnes in April alone.
Mexico has purchased over 100
tonnes since February
Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it's buying some of its local
continues buying, adding
15.5 tonnes in May. Its total reserves now stand at 911.3 tonnes, the highest
level since 1993.
has raised its
holdings by more than 80% since
Korea has bought 40
tonnes since May 2009, an increase
World Gold Council (WGC) reported that central-bank purchases totaled 80.8
tonnes in Q1 2012, about 7% of global demand.
the past 12 months,
net purchases have averaged
almost 20% of total annual
Here's the picture
of what has transpired since the financial crisis hit in late 2008.
banks have added a net of
1,290 tonnes since the fourth
quarter of 2008. This total excludes China and other nations that don't regularly report their activity, as well as countries that have
been surreptitiously buying
their own production.
That's a lot of gold buying.
One has to wonder whether
so much buying may in fact signal a top for gold. After
all, a number of prominent
analysts have claimed for
some time that gold is in a bubble and that it's all downhill from here.
so fast. Like many mainstream
reports, looking at the
short-term picture usually leads to erroneous
conclusions. Let's put central-bank
purchases into historical perspective.
spite of the recent activity,
world central-bank holdings are far below what they
were in 1980. Clearly, a few years of net buying does not a bubble make.
difference is greater than you might realize.
Consider that since 1980…
global population has grown 55%
gold supply has grown
holdings have increased 650% since 1995, and now total
seems rather obvious that a lot more
"catch-up" buying is
needed before we start talking
about a top for gold on this basis.
Meanwhile, we think the trend of central-bank
gold buying will
continue. It's not hard to see
why: central bankers around the world know what it must ultimately mean to run the printing
presses the way the US has since
2008, even if price
inflation is not immediately
obvious. It's no surprise
that they want to hedge their bets, moving
more reserves into something with actual value... something that can't be
debased with a few keystrokes. The US dollar has been the world's reserve currency since WWII, and that's beginning to change
– the movement into
gold is just one facet of that change.
entire world may indeed be beginning
to understand that it's operating on a fiat currency
system backed by nothing.
At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded
in inflating their currencies faster than the Fed has inflated the
USD. It doesn't take
Nostradamus to read this writing on the wall… and while the world's central bankers can lie to the public, they themselves know how bad things are.
fact, the WGC is so confident that central banks will continue to buy gold that it's changed its reporting structure: it's added "official sector purchases" as a new
element of gold demand, while eliminating
"official sector sales" as a negative supply factor.
course, gold will someday
top, and Doug Casey believes a bubble
in gold and related equities
is highly likely at some
point, courtesy of the trillions more currency units governments will create in a desperate (and ultimately unsuccessful) attempt to stave off the Greater Depression.
we're nowhere near that point. There's a long way to go before we start
legitimately using the
"B word" (bubble)
or "S word" (sell).
the meantime, I suggest using the "B word" (buy) or "A word" (accumulate) to make your decisions about gold.
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