Why Are Central Banks Buying Gold?

Why are central banks buying gold? A simple question with a simple answer:

Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies.

There is an increasing realisation amongst central bankers that gold is a less risky alternative to most paper currencies and a recent survey showed that the majority of central bank reserves managers were favourable towards gold. 

If we accept the above reason for the increased demand for gold, we then have two issues to address:

  1. If demand is up, why has the price dropped 0.99% in the past month?
  2. Since China is buying Iranian oil with gold (along with India), is this an attempt to avoid US sanctions (doubtful) or an attempt to replace the USD as the world’s reserve currency?
The price of gold is determined by world demand and the value of the currency used for the transactions. Since the USD has seen an increase on the world market due to the flight from the Euro, this accounts for part of the decline. What is causing the majority of the decline of the price of gold and silver: manipulation. What are China’s motives for increasing gold? As with any question dealing with the Chinese, the strategy is contingent on many factors. A simple answer is usually correct: they want gold to secure their wealth once fiat currencies collapse.
What lessons can we learn from this report? If central banks around the world are securing their wealth with gold, our personal course of action should be the same. The banks are not buying GLD (the gold ETF) or paper contracts that the government can steal (MF Global) or more likely is also fiat; they are buying physical gold. How will the governments of the world protect their central banks in the future? They will require all transactions to be made (and tracked) electronically. Paper currency will be eliminated and gold will be illegal to own or more likely, gold will be legal but we just will not be able to use it for financial transactions. I would rather have gold in the future than a government controlled fiat currency. In fact, as my readers will know, I’ve been stocking up on gold bullion bars and gold nuggets (courtesy of Nuggets By Grant). I am perhaps the biggest bull in the room when it comes to Gold, and happily hold both virtual and physical storages of it.
David DeGerolamo

Russia and Mexico Both Buy Nearly $1 Billion Worth of Gold in March

Changes to Gold Holdings in IMF (March) – Reuters Global Gold Forum

Other creditor nations with large foreign exchange reserves and exposure to the dollar and the euro including Turkey and Kazakhstan also increased their holdings of gold according to the International Monetary Fund data.

Mexico raised its reserves to 122.6 tons last month when gold averaged $1,676.67 an ounce.

Turkey added 11.5 tons, Kazakhstan 4.3 tons, Ukraine 1.2 tons, Tajikistan 0.4 ton, and Belarus 0.1 tonnes, according to the IMF.

Ukraine, Czech Republic and Belarus also had modest increases in their gold reserves.

Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies.

There is an increasing realisation amongst central bankers that gold is a less risky alternative to most paper currencies and a recent survey showed that that majority of central bank reserves managers were favourable towards gold.

Signifying the mood of caution among the world’s central bankers, 71% of those polled said gold was a more attractive investment than it had been at the start of last year.

Central banks added 439.7 tons last year, the most in almost five decades, and may buy a similar amount if not more in 2012, the World Gold Council and many analysts believe.

Turkey’s central bank increased the proportion of required reserves that commercial banks can deposit in gold last year. The changes have increased the amount of bullion the country, which owns 209.6 tons, declares in its official reserves.

More….

      
Plugin by: PHP Freelancer
This entry was posted in Editorial, Financial and tagged , , , , , . Bookmark the permalink.
0 0 votes
Article Rating
3 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Hal (GT)
10 years ago

Managed manipulation is what is going on right now. World govs are doing what they can to prepare by getting as much gold as possible. I think it’s amazing what China is doing with Iran in buying oil with gold. They’ve definitely but gold back on the map as a currency and a currency of last resort at that.

Lumea Incriza
10 years ago

Is there an official info regarding China paying gold for iranian oil -- apart from the acceptance of the National Iran Bank that it will accept gold? I mean, on the China part is there any real news or just speculation?