Monday, July 9, 2012

Central Banks are Net Buyers of Gold for First Time Since 1965! Mexico and Russia top the List. An Investment Opportunity?

Central Banks are now net buyers of gold again (Barron's Commodities Corner). For those that might think this information is not important for the gold market, it is important to consider that they have been net SELLERS of gold since 1965! Personally, I have never been a big gold bug, but this is indeed interesting news.

In the 12 months leading up to March 31st, central banks around the world have increased their gold reserves by 400 metric tonnes, or 2,205 pounds. The financial crisis and global instability have led many investors and bankers to warm to gold again as a viable asset. Prior, under the Bretton Woods system, the world's central bankers needed gold as a reserve for their currencies, but when that system collapsed, many central bankers began dumping their gold as it was no longer needed to back the purchasing power of their fiat money. 

Are central bankers moving back towards gold as their primary reserve? The Intelligent Investor should not bet on it, as pure fiat money (or money that has value by fiat or decree of the government) is much easier for the world's bankers to manipulate. Nonetheless, it is clear that at least Mexico and Russia have started to buy gold in huge amounts, with Mexico alone accumulating 100 tonnes. Is Russia demanding gold for oil in some instances? Some speculators and investors think that may be happening.

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