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Central Bank Gold Buying Surged in 2011

Release Date: 
Friday, February 17, 2012

Gold fell slightly on Friday on profit taking following an initial rally driven by growing confidence that Greece would receive its needed bailout. Greece is seeking more aid on top of the $145 billion awarded in 2010. As of 10:32 AM Pacific Time, gold was trading at $1,724.70 per ounce on the New York Spot Market, while silver traded at $33.33 per ounce.

Central banks are keeping interest rates at or near record lows and expanding stimulus measures to spur growth. The World Gold Council released data on gold demand this week, revealing that central banks acquired 500% more gold in 2011 (440 tons) than in 2010 (77 tons) – the highest level of buying since 1964. 2010 was the first year in decades that central banks became net buyers of gold, and this trend continues. Large buyers included Mexico, Russia and South Korea.

The World Gold Council believes China’s central bank made significant gold purchases in the final months of 2011, contributing to a surge in the country’s imports. In 2009, Beijing revealed it had almost doubled its gold reserves since 2003, making it the fifth-largest holder of bullion with 1,054 tons. The WGC on Thursday predicted that China would overtake India as the world’s top gold consumer.

In a letter to investors, billionaire hedge-fund manager John Paulson wrote that he believes gold could provide a safe haven against inflation caused by government spending. "By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold," Paulson said.

Twelve of 22 surveyed by Bloomberg were bullish on gold prices for next week, while five were neutral.

(Sources: "Behind Central Banks' Gold Buying," TheStreet.com, February 17, 2012; "China central bank in gold-buying push," Financial Times, February 17, 2012; "Gold Bulls Expand as Billionaire Paulson Says Buy," Bloomberg, February 17, 2012; "Gold down on profit-taking, Greek uncertainty," Reuters, February 17, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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