The Central Banks Are Buying Gold Like It’s 1965

This week’s Barron’s points to recent World Gold Council data showing enormous gold purchases by central banks over the past year. These purchases are most likely not a temporary tactical move, but rather a powerful long term trend that will continue for years, if not decades. But wait: don’t the central banks want us “normies” to buy up more equities, invest and spend with record amounts of fiat currency, and heckle the gold bugs for their hilarious foolishness? It appears to be a case of “Do as I say, not a I do.”

Not that we’d suggest you make investment decisions based solely on the words or deeds of a central banker [see: Jim Rogers Says: Buy Commodities Now, Or You’ll Hate Yourself Later]. This sustained buying by central banks however is no longer a “scoop” for Web journalists such as your humbler writer, but rather a significant, semi-permanent factor in the overall supply-and-demand equation that will determine the price of gold over time.

Central banks increased their gold hoards by 400 metric tons—each equal to almost 2,205 pounds—in the 12 months through March 31, up from 156 tons during the prior year… The council “is now confident that central banks will continue to buy gold and has added official-sector purchases as a new element of gold demand,” writes Austin Kiddle in a report for London-based bullion dealer Sharps Pixley.

This steady flow of gold into the vaults of central bankers is notable for both the size and consistency of its volume. Indeed, this type of official purchasing last occurred in 1965, when the global monetary landscape hardly resembled the current all-fiat experimental system.

So what does this mean for retail gold investors?

…consistent buying of 10% of annual supply can’t but help keep the price elevated… But that’s only one big change. The second: Short-term speculators have fled the market. Open interest of managed futures funds, considered a good proxy for all speculators, has dropped a staggering 28% since the beginning of September…

Less liquidity will tend to make gold prices more volatile. On the other hand, sustained, large-scale gold purchases by central banks can’t help but build the bull case for all precious metals, and especially gold, over the next decade or two. Many retail investors who can’t justify buying gold as an investment, might consider buying a smaller amount as a hedge [see: What Are The Most Popular Gold Bullion Coins?].

The old maxim “don’t fight the Fed” can apply to many different trading scenarios; the implication that you should be long the yellow metal may simply be a sign of the times.

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Disclosure: The author is long gold.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

12 Responses to “The Central Banks Are Buying Gold Like It’s 1965”

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  3. [...] The first half of 2012 seemed like the perfect environment for gold. Uncertainty over the euro zone–and the potential collapse of one of the world’s largest fiat currencies–has been a major theme. Expectations over an eventual uptick in inflation remain, and many emerging markets (e.g., India) have seen runaway inflation already. And to top it off, central banks have been buying gold like it’s 1965. [...]

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  5. [...] Similar to GDX, this fund offers investors exposure to some of the largest gold mining companies in the world. Although there is a significant overlap in these two funds in terms of individual holdings, RING offers a deeper and slightly more diversified portfolio, consisting of just over 45 securities from a greater number of countries across the globe, including both developed and emerging markets. Additionally, RING holds the title of cheapest gold miner ETF with its expense ratio at a mere 0.39%. Despite being a newcomer to the market, making its debut in January of 2012, RING has already accumulated more that $33 million in assets and is quickly gaining popularity [see The Central Banks Are Buying Gold Like It's 1965]. [...]

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  7. [...] are currently offered. With all of the talks of another round of QE and money printing from other central banks around the world, the market has priced in a healthy appreciation for this yellow metal. It should also be noted [...]

  8. [...] banks of dozens of countries around the world hold gold bullion as a store of value and guarantee to debt-holders  Gold is occasionally used in the settlement of [...]

  9. [...] have nothing to do with the rampant money printing by the Fed, inflationary scares, the fact that central banks are buying up the precious metal, or even threats of a collapsing economy. Instead, the momentum for gold for [...]

  10. [...] have nothing to do with the rampant money printing by the Fed, inflationary scares, the fact thatcentral banks are buying up the precious metal, or even threats of a collapsing economy. Instead, the momentum for gold for [...]

  11. [...] 674 tons have a market value of $36 billion, making this process quite an undertaking. The bank has made a move once before, as it vacated some of its reserves from the Bank of England after the bank raised [...]

  12. [...] now, but has decided to shift its focus a bit toward increasing the pace of economic growth. Other central banks across the globe have a similar stance, and this is worrying a number of market experts that it [...]

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