Central banks are purchasing gold at rates not seen in multiple decades. Posted by James Randolph on November 21, 2011
Central Banks Buying Gold at 40 Year High
November 21, 2011 – Following a week that saw open admissions of major US banks using customer funds for losing investments, there is now a fitting report out that central banks are purchasing gold at rates not seen in multiple decades. The September correction spurred a serious buying binge as the drop in prices made the third quarter the biggest for central banks buying gold in forty years.
For banks, gold is major method of diversification and in the current market heralds the uncertainty of other investments previously considered more solid, such as real estate. As multiple economic, monetary, and political crises unfold around the globe, gold is the asset central banks are turning to.
Curiously, this level of buying has not been seen since the collapse of the Bretton Woods system 40 years ago. Bretton Woods refers to an international system of monetary regulation put into effect following World War II in order to rebuild the world’s economies. The United States effectively and unilaterally ended Bretton Woods in 1971 when the US dollar went off the gold standard and became a wholly fiat currency.
Forty years later, fiat currencies are fighting one another to stay afloat and central banks are moving back to gold. While central banks are one of the most important factors in the gold market, they rarely disclose information about changes in their reserves. A handful of countries, including Russia, Bolivia, and Thailand, have publicly announced their purchases. On the whole, however, central banks became net buyers of gold last year after two decades of selling.
For a commodity that is up 21 per cent year to date, is the best performing asset of the past year, and shows a 600 per cent gain in the decade, it seems gold is the smart place to put your money in terms of monetary sense and real sense. As central banks create a new gold rush in the third, and the coming fourth, quarters, the implication for papers currencies is clear. Central banks are buying gold now because that’s where the money is.
Senior Staff Writer – Certified Gold Exchange