Tags: Central | banks | gold | buyers

The Buyers Pushing Gold Higher? Central Banks

By    |   Tuesday, 21 February 2012 08:06 AM

Gold prices gained 10 percent last year and have jumped another 10 percent so far this year.

Many analysts attribute the rise to central banks, saying their accommodative monetary policies have debased currencies, pushing investors to the precious metal.

But many investors may not realize that central banks are buying gold themselves, playing a major role in the metal’s rally.

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Just five years ago, jewelry accounted for two-thirds of gold demand. Last year, it represented less than half, according to the World Gold Council, The Wall Street Journal reports.

That demand has shifted partly to investors. Demand for physical gold and exchange-traded funds surged 9.4 million ounces between 2009 and 2011. That more than made up for the 6.6-million-ounce plunge in jewelry demand.

But most of that demand came in 2009. Gold flow into ETFs slipped in 2011.

Enter the central banks, especially those in emerging markets. They have stepped in to snap up available gold supply, buying 11.7 million ounces last year.

So gold bulls should thank central banks twice – once for pursing policies that boost the precious metal’s price, and once for purchasing it themselves.

Many investors, including hedge fund legend John Paulson, expect further gains by gold.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” he writes in a letter to investors obtained by Bloomberg.

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Tuesday, 21 February 2012 08:06 AM
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