10/22/09 Stockholm, Sweden – The central banks of the world are changing tune. Since 1989, the banks have been net sellers of gold reserves, meaning that as a group they have sold more than they have taken in. This is an important point because the large gold sales of central banks tend toward lowering the spot price of gold. The news emerging from a September 2009 GMFS report is that central banks as a whole are once again becoming net buyers, and their purchases have the potential to put upward pressure on the price of gold in the public markets.
According to GFMS, “this represents a remarkable change of direction for a market that has been used to absorbing substantial volumes of gold sold by central banks over the last decade.”
Central bank gold sales may have been initially enlisted in an effort to support the dollar as the world’s reserve currency, especially since 1971 when the US de-linked the dollar from gold. The changing trend may be related to recent renewed interest in the SDR, which has been getting a lot of attention in media as a potential replacement reserve currency. Or, it could reflect an anticipation of a continued increase in the value of gold over time.
Either way, this is an important trend to watch. Central banks are significant players in the gold market and can affect the value of your personal gold holdings.
The full story is available from Jesse’s Cafe Americain which has more details on the official central bank purchases and several insightful charts.
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
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central bank buying of gold is actually a more dangerous thing….they don’t want it as a consideration for currency strength but as a ploy to keep it out of the hands of the little people so that they can keep their paper and political tyranny in place….
gold should be purchased vigorously, religiously, and at all cost….