Gold Role Reversal: Central Banks Now Net Gold Buyers

The world is turning upside down when central bankers are accumulating gold and ordinary people are not.

Last year, central banks were net buyers of gold for the first time since 1988. In fact, they bought the most gold in any year since 1964. Total central bank holdings worldwide, according to the World Gold Council, grew by 425 metric tons last year.

True, that’s only 1.4% of the gold central banks already held. But it’s the trend that matters: China, India, and Russia all added to their reserves last year. And it fits into a bigger picture – growing distrust of the world’s reserve currency.

“I think we already have a gold standard…created by the marketplace,” says the inimitable Marc Faber. Not just the central banks, either: “We have the [exchange-traded funds] that have proliferated, and we have more and more physical buying of gold.”

At least there’s more physical buying when it comes to the ultra-wealthy who can buy huge bars of the stuff. Retail investors who buy coins? Not so much.

Sales of the popular Austrian Philharmonic gold coins have crashed 80% compared with a year ago. The numbers aren’t as dramatic in the United States, but still, sales of Gold Eagles in February fell 26% from year-ago figures.

“There’s no more upward surge in gold price to titillate buyers,” explains the Austrian mint’s veteran marketing director Kerry Tattersall. Plus, “a lot of people feel more relaxed about the economic crisis.”

Then again, maybe most of the folks who have the means to buy gold have done so already…and those who don’t are buying silver. Sales of US Silver Eagles in the first two months of 2010 are up 40% compared with the same period in 2009, according to CPM Group. Many buyers are waiting up to three weeks for delivery.

Addison Wiggin
for The Daily Reckoning