He says, âWestern Central banks have essentially shut the tap off, and the vast majority of the buying is coming from Eastern central banks.â
In just the first half of this year, official sector purchases are up three-fold over the 2010 total to 216 tons, accord to the GFMS report. GFMS says the rise is largely due to low sales levels from Central Bank Gold Agreement (CBGA) signatories and the International Monetary Fund (IMF) completing its sales program at the end of 2010. In addition, other countries have gobbled up gold in an effort to diversify reserves away from the U.S. dollar. Scotia Capital estimates central banksâ total purchases of gold will reach 248 tons by year-end.
Some of the big buyers have been Mexico (whose central bank purchased roughly 100 tons of gold earlier this year), Korea (purchased 25 tons in June), Thailand (purchased nearly 19 tons in June) and Russia (which has purchased over 50 tons of gold from its domestic market year-to-date).
Toussaint says Eastern central banks are âcatching up with the rest of the worldâ because their current allocation is tiny right now. However, whenever the WGC discusses these buying habits with the central banks of Korea, Taiwan and other Asian countries, they consistently say that they are interested in gold, and looking to hold it over the long-term. In other words, he says, this is not a âknee-jerk reaction to the direction of the dollar.â
GFMS also believes that this could be just the beginning. In a release announcing the report, Philip Klapwijk, Global Head of Metals Analytics at GFMS, said, âwe are in essence in chapter three of the central bank storyâweâve left behind a period of heavy net sales, then a short period of neutrality and weâre now in a new environment of heavy buying.â
Listen to a Case for Investing in Gold
This only scratches the surface of what was covered during the webcast. We discussed much more than China, India and central bank gold demand. If you missed it the first time, you can listen to the entire presentation at your leisure here. Find out the reasons we donât believe gold is in a bubble, the economic factors affecting how gold is valued, and how our culture and emotions shape the gold-investing landscape. Itâs great insight for the serious gold investor.