Guest Post: Does Central-Bank Gold-Buying Signal The Top Is Near?

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

Does Central-Bank Gold-Buying Signal The Top Is Near?

Doug Casey told me in January, "The only thing that scares me is that central banks are buying a lot of gold; they're historically contrary indicators." When it comes to buying gold, central banks have such a poor timing record that they're frequently joked about as a contrary indicator.

Recently, they have been buying, quite literally, tonnes of it. Consider the following:

  • Net central-bank purchases in 2011 exceeded 455 tonnes. This was only the second increase since 1988 (the first in 2010) and the largest since 1964.
  • Turkey has added over 123 tonnes since last October, buying 29.7 tonnes in April alone.
  • Mexico has purchased over 100 tonnes since February 2011.
  • The Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it's buying some of its local production.
  • Russia continues buying, adding 15.5 tonnes in May. Its total reserves now stand at 911.3 tonnes, the highest level since 1993.
  • Thailand has raised its holdings by more than 80% since mid-2010.
  • South Korea has bought 40 tonnes since May 2009, an increase of 180%.
  • The World Gold Council (WGC) reported that central-bank purchases totaled 80.8 tonnes in Q1 2012, about 7% of global demand.
  • Over the past 12 months, net purchases have averaged almost 20% of total annual supply.

Here's the picture of what has transpired since the financial crisis hit in late 2008.

(Click on image to enlarge)

Central banks have added a net of 1,290 tonnes since the fourth quarter of 2008. This total excludes China and other nations that don't regularly report their activity, as well as countries that have been surreptitiously buying their own production.

That's a lot of gold buying. One has to wonder whether so much buying may in fact signal a top for gold. After all, a number of prominent analysts have claimed for some time that gold is in a bubble and that it's all downhill from here.

Not so fast. Like many mainstream reports, looking at the short-term picture usually leads to erroneous conclusions. Let's put central-bank purchases into historical perspective.

(Click on image to enlarge)

In spite of the recent activity, world central-bank holdings are far below what they were in 1980. Clearly, a few years of net buying does not a bubble make.

The difference is greater than you might realize. Consider that since 1980…

  • The global population has grown 55%
  • Worldwide gold supply has grown 120%
  • Foreign-exchange holdings have increased 650% since 1995, and now total $10.4 trillion.

It seems rather obvious that a lot more "catch-up" buying is needed before we start talking about a top for gold on this basis.

Meanwhile, we think the trend of central-bank gold buying will continue. It's not hard to see why: central bankers around the world know what it must ultimately mean to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It's no surprise that they want to hedge their bets, moving more reserves into something with actual value... something that can't be debased with a few keystrokes. The US dollar has been the world's reserve currency since WWII, and that's beginning to change – the movement into gold is just one facet of that change.

The entire world may indeed be beginning to understand that it's operating on a fiat currency system backed by nothing. At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded in inflating their currencies faster than the Fed has inflated the USD. It doesn't take Nostradamus to read this writing on the wall… and while the world's central bankers can lie to the public, they themselves know how bad things are.

In fact, the WGC is so confident that central banks will continue to buy gold that it's changed its reporting structure: it's added "official sector purchases" as a new element of gold demand, while eliminating "official sector sales" as a negative supply factor.

Of course, gold will someday top, and Doug Casey believes a bubble in gold and related equities is highly likely at some point, courtesy of the trillions more currency units governments will create in a desperate (and ultimately unsuccessful) attempt to stave off the Greater Depression.

But we're nowhere near that point. There's a long way to go before we start legitimately using the "B word" (bubble) or "S word" (sell).

In the meantime, I suggest using the "B word" (buy) or "A word" (accumulate) to make your decisions about gold.

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flacon's picture

When the debt and derivatives get cleared out (MARKED TO MARKET and fully absorbed) then we will have the top in gold. Not before then.

Flakmeister's picture

Top relative to what??? Fiatcos??

The only useful metric is food and energy....

flacon's picture

The only useful metric is food and energy....


Which have zero flow if there is no trade (money); gold and silver is money and nothing else. What good are stuffed grain elevators and ships full of oil if there is no money to buy it? Gold will be revalued relative to the physical needs of the world (food and energy are good examples). 

Flakmeister's picture

Hey, I'm a gold bug as well, but you are deluding yourself...

All economies are first and foremost local....

And for shits and giggles, if their flow was zero, what would that do to the price?

flacon's picture

what would that do to the price?


What is price if the only useful metric is food and oil? (I'm just playing devil's advocate here).


If what you suggest is true then the price of a kilo of tomatoes might be 1.5 kilos of green peppers, or 100ml of gasoline. Can a society function that way for long, on direct barter?


I suppose one could say that gold will be priced in food and oil, or food and oil will be priced in gold. But either way gold (money) is the mechanism of wealth transfer, the "conduit" if you will. With no conduit there is no flow (except direct barter which is fine on a small village/hamlet scale, but not on a city/state/national/global level). 


Some good reading from "FLOW OF VALUE" blog (a distant cousin of FOFOA):

LowProfile's picture

Not surprisingly, (if one actually bothered to investigate, that is) during the hyperinflation in Zimbabwe they used US dollars, gasoline and placer gold as mediums of exchange. 

From what I could glean Zimbabwe society seemed to function about as well as it did before their gov't blew up the currency, it's just that those who tried to save in Zim dollars had a difficult time of it.


edit:  LOL, down arrows for pointing out what actually happened.  Somebody can't handle the troof!

cranky-old-geezer's picture



I rather doubt our economy will function well at all after the Fed blows up our currency, which they will do eventually.  Actually they're doing it now, it just takes a while to reach a collapse point, we're not there yet ...but getting closer all the time.  Ongoing printing is the only way to keep the growing debt bondzi bubble going, and ongoing printing will collapse the currency eventually.

Gold is a natural way to preserve wealth during a time of debasing currency and eventual collapsing currency. 

Anyone speaking against gold is speaking against 5,000 years of human history, so their arguments are worthless bullshit.

And they're speaking against what central banks are doing, loading up on gold again.  Central banks don't give a fuck what they think.

On the other hand remember that central bank gold holdings are meaningless as far as the currency is concerned.  The currency isn't redeemable for any of that gold.

LowProfile's picture


I rather doubt our economy will function well at all after the Fed blows up our currency

True, and our economy will suffer quite a bit more than Zimbabwe's did (as they didn't have much of one to speak of anyway).  The main thing will be access to energy, specifically liquid fuels for transportation.

On the other hand remember that central bank gold holdings are meaningless as far as the currency is concerned.  The currency isn't redeemable for any of that gold.

Not redeemable, but it is still exchangeable (you can use it to purchase gold).  When they start to screw with that here (e.g. Argentina has now made it illegal to hold exchange pesos for US dollars - Can gold be far behind?)  I think the endgame will be nigh.  Gold would move to the black market, and absolutely explode in price...

cranky-old-geezer's picture



Yes I agree about eventual outlawing and black market.  It may well happen here.

I was speaking about central bank gold holdings making the currency more valuable, which they don't, because the currency isn't redeemable for any of that central bank gold.

No, "gold backed" means nothing.  It's meaningless.

"redeemable" is the only thing that counts, and then only when it says right on the currency how much gold, i.e. grams or portion of a gram.

LowProfile's picture

While preferable to our current state of affairs, I'm not sure redeemability in gold is the answer, given the history of gov'ts always printing more receipts than they have specie for.

I'm for eliminating all forms of paper gold - Futures, ETF's, margin on exchange-tradable trusts (such as PHYS), etc.  Trusts, redeemable in metal, are probably fine, as long as they cannot be borrowed against (margined).

That way we get a true free market in gold, something we haven't had for quite some time.  This allows the savers to save without being forced into the stock/bond/CDS/ponzi to maintain their savings against inflation (and w/o any currency risk).

cranky-old-geezer's picture



I don't participate in fantasies.  I live in the real world.  None of those things you propose are going to happen. 

America is heading toward a feudalistic society of rich aristocracy and serfs living in poverty.  Gold will be forbidden to the serfs.  Anything beside the "currency of the realm" will be forbidden to the serfs.   A currency by which the rich aristocracy will loot what little wealth the serfs have, just like they do now.

America has no future.  The nation is finished.  All that's left is the looting.

mkkby's picture

You don't engage in fantasy, then you go off the deep end about some future you've imagined.  Please don't go off the meds.  Fucking funniest comments on the thread.

MillionDollarBoner_'s picture

To understand the Zim inflation one has to think outside the box.

Mugabe only wanted to destroy the white farmers. He pretty much achieved this by destroying the value of the currency in which they held their savings.

He knew the impact on his power base would be limited because 1) he tipped his affluent supporters off in advance and 2) the rest of his supporters did not have any savings in the first place.


LowProfile's picture

Well maybe...  I'll have to ponder that one.

Frankly, I'm not sure Mugabe thinks or thought that much (never struck me as an intellectual), I suspect he's a puppet of TPTB.

prole's picture

MDB I think your Zim premise is wrong-

Mug wiped out the White farmers by having them invaded and shot by swarms of ~persons~ with defacto military/police sanction.

The White farmers didn't care about the local currency, as they were already savvy to operating in African economies, and thus (now I am guessing here) held their wealth in Land. They had the land and food products, when the zim dollar crashed and food was only available for gold, they are the ones with the food, and the productive land. (which Mug eradicated)

IMO absent a government backed genocide against them, (to which the west of course was totally indifferent, while crying rivers of crocodile tears about 'bosnians" and Kuwait) the white farmers of Zim would have been fine regardless of the fate of the local currency.

The Monkey's picture

Maybe gold will blow off to $2,000+. If we have reached the point where central banks are constantly on the gas pedal, then why not? All assets should move higher.

That's a pretty gutsy call for the central banks though. If the tendency of the world enonomy is lower growth and central bank action will not provide it, then what does central bank action really do? It:

-- defers action on the fiscal side
-- lifts speculative sentiment and prices
-- distorts the message that prices send to producers and consumers
-- artificially increases corporate profit via price and translation effects from FX rate of change
-- inherently creates massive sentiment overshoot
-- delays recession, but not indefinitely, but increases the potential magnitude (see my first point)
-- causes us to act differently with respect to saving, taking on credit, and our vote

The central banks are busy working up it's next "save the world economy" concoction, inviting speculators to the party and promising ever greater amounts of monetary stimulus. In the end, this will make for a magnificent top that has so much slack that it will fold into itself in a humongous crash. All the work to instill confidence, encourage consumers and businesses to borrow (and banks to lend) will be for naught.

In 1928, the Fed was very aggressive, stepping on the gas hard when economic weakness presented itself. The result was a huge set-up for short-sellers who were patient enough to let every ounce of buying dry up. The massively leveraged pyramid went into reverse as recession presented itself again.

Bernanke is a very smart guy who has studied the Great Depression. He has followed the script layed out by Irving Fisher. Now, instead of a durable recovery, central banks find themselves in the same spot they were in during 1928. Will they punch the gas and give us that last manic speculative top again? Or, do they take it on the chin during an election year?

Plan on it. Congress will do close to nothing and the Fed is already communicating they will step in, likely without any corrective action this time (see Lockhart's comments). The house of cards will have one last speculative burst, setting up the best short since 1929.

Sad, but the only thing to do now is front-run the Fed (because time is short before massive action), or sit on the sidelines with cash or treasuries waiting to short the blow off top. What a total cluster.

OpenThePodBayDoorHAL's picture

Seems to me that interest rates are the "price" of money. Right now that price seems to be headed to zero. I agree with Bill Fleckenstein, the 40-year experiment with all-paper money is nearing a conclusion of some kind.

MillionDollarBoner_'s picture

"Maybe gold will blow off to $2,000+."

Wow - aim high, why doncha?!?

steve from virginia's picture


From what I see dollars are scarce but gold will be moreso.

From a quantity of money standpoint dollars will be worth a lot, however:

Dollars = discredited government and bankrupt finance.

Gold = not a discredited government and bankrupt finance.

Gold could be worth $15k or more.  Buy a house with an ounce.

Hobbleknee's picture

"All economies are first and foremost local...."

Really?  Everything in my house was made in China.

HoofHearted's picture

If the US and UK ever get into the buying act, then it is time to drop whatever you hold in favor of something else. The UK may be the best contrarian indicator thanks to their sales when gold was at its low...

Citxmech's picture

I think economies expand to the limits provided by transportation/engery.  They will become more local only as energy/transportation costs rise.

Au Shucks's picture

do you live in China per chance? 

_SILENCER's picture

Really?  Everything in my house was made in China.


Goddamn, I almost sprayed my coffee on the monitor with that one!

akak's picture

Made me laugh.  A typical reaction from your usual blobbing-up, overconsumpting, pulling all into center and pushing blame to exterior US Citizenism-practicing US Citizen, whose nature is eternal (because I say so!).


(And if I keep saying the nonsensical phrase "US Citizenism" enough times, maybe I can actually make it something real instead of just the creation of the bigoted imagination of an autistic and mentally deranged Chinese troll.)

pacu44's picture

Then i will be king locally :)

HardAssets's picture

"What good are stuffed grain elevators and ships full of oil if there is no money to buy it?"


I'm long the PMs (and waiting for the freakin' miners to get with it someday too). But, seriously, read Murray Rothbard on the origins and nature of  money and how it relates to gold.

Gold and silver are the commodities which were found to be generally valued by people. Farmer Jones didnt have to find a cobbler who needed eggs, in order to buy a paiir of shoes for his kids. Rather than using direct exchange (that is, barter), one could employ indirect exchange. The cobbler who was allergic to eggs could accept gold and/or silver for his shoes. He knew the metals were valued by people in general and that he could trade them for things he needed.

Various money units such as the British pound sterling, American dollar, etc - - were the names given for certain weights of precious metals. Later paper receipts were issued to represent those metals, and the bankster fraud of printing more receipts than metal held for customers in their vaults, got the whole fractional reserve fiat mess started.

pdf version of Rothbards writings on the origins and nature of money, and how this relates to gold can be down loaded for free from these webpages:

 P.S. - - you probably know all this, and I may have only misinterpreted or took your statement above too literally. In any case, the links above are good ones for people to research this topic. - - The whole point of trade is for people to get the final goods that they consume - - including oil and grain. They can trade for this using direct or indirect means - - but the 'stuff' itself is what counts in the end. Money facilitates the trade but isnt absolutely required. Given the added convenience for trade, people are likely to invent it in one form or another, however. This is especially true as transactions become more complicated. (Though Iran has been trading oil for goods they need lately.)

SheepRevolution's picture

You should do some more research and find that gold was, up until 1971, the banksters choice of money. Since it is very rare, therefore it is also easy to control the supply. It isn't primarly about what backs our money, but who controls the quantity of it! The banksters fought fiercly to make gold the only PM to back money, and in 1900 they finally made it with the Gold Standard Act (fuck you William McKinley). Up untill then, gold AND silver was money. And the banksters hated silver because the couldn't controll the supply of it.


What's scary about central bank now buying so much gold, is that less and less of it is in the hands of We The People. If we one day would switch to a gold standard again, the banksters will still be in controll.

foxenburg's picture

That may be true, but, since I've stacked more gold than the average person, I hope to get a good ride on their coat tails.

LowProfile's picture


What's scary about central bank now buying so much gold, is that less and less of it is in the hands of We The People. If we one day would switch to a gold standard again, the banksters will still be in controll.

80% of all gold is privately held.

passwordis's picture

80% of all gold is privately held.

Private means Corperate interests (not you and me)

Data from the International Monetary Fund Financial Statistics Report says governments, central banks, and investment funds are the world's largest holders of gold reserves.

El Tuco's picture

It all depends on how bad things get. If you think that everything will unwind in a controlled fashion, sure PM's make sense. If we get into a situation where it resembles Eastern Europe c.1940-45 or Bosnia War c.1992-1995 then I think it would mean shit. But then again those things happened long ago and so far away that they could never happen here or probably again. We are way more civilized now. I can't think of anyone who would kill to save his family.


Irene's picture

During WWII, the Nazis and others were happy to trade and traffic in gold.  If you wanted to save you life, say, gold was what you paid.  If you were some little country about to be overrun by the the Nazis or Soviets, you wanted to get your gold out to some safer haven.

Gold never meant shit.  Only Americans think that way.


passwordis's picture

  Germany was the victim of international/Zionist financiers.  Germany was left with no other option but to defend itself. Everything you think you know about the history of war is false. The Jews within Germany (German Citizens) and their brethren around the world conspired to destroy Germany because Germany was economically independent and would not play the Jewish finance game. 

 All we hear is that Hitler was a madman who "hated" the Jews. No one asks why. Was Hitler born with Jew Hating DNA? Did a Jewish women spank him too hard when he was a young boy? Most people do not posses the cognitive ability to consider the most basic questions.  What caused Hitler to "hate" the Jews?

  The truth is Hitler did not "hate" the Jews. The truth is the Jews were attempting to destroy Germany from within. High placed German Jews (German Citizens) stabbed their own country in the back. International Jews declared economic war on Germany because Germany vowed to remain independent of the Jewish financiers. Hitler was protecting his country from the Jewish financiers.  And before someone tells me that none of this justifies the killing of millions of Jews, allow me to reference the words of former Chief of Staff (Ronald Reagan) James Baker in an interview with DER SPIEGEL magazine in 1992.



(DER SPIEGEL, 13/1992)




Citxmech's picture

"The only useful metric is food and energy...."

Don't forget land and men's suits.

oleander garch's picture

Good point on the relativity scale, Flacon.  Overall, this total position is interesting but the relative amount of fiat money is a good deal higher than in 1980.  I would assume that the total tonnage would have to be on the order of 100 times or more to back all that trash tied to derivatives.

NJBDeflator's picture

I just wrote a piece called "Welcome To The Future" that pertains to this:


How the hell do I submit a guest post? 

LowProfile's picture

Submit to

Or post your article here in a comment as a 'trial balloon' (post links to your charts).

Fair warning though:  I believe the readers here will not be kind regarding your conclusion.  You ignore much of the negatives regarding China, and assume much regarding the efficacy of central planning/command and control.

SHRAGS's picture

NJB, here's a leaked cable from wikileaks:

C O N F I D E N T I A L SECTION 01 OF 04 BEIJING 001760 SIPDIS SIPDIS E.O. 12958: DECL: 03/15/2032 TAGS: PGOV [Internal Governmental Affairs], PREL [External Political Relations], ECON [Economic Conditions], SOCI [Social Conditions], CH [China (Mainland)] SUBJECT: FIFTH GENERATION STAR LI KEQIANG DISCUSSES DOMESTIC CHALLENGES, TRADE RELATIONS WITH AMBASSADOR REF: SHENYANG 26 Classified By: Ambassador Clark T. Randt, Jr. Reasons 1.4 (b) and (d). Summary ------- ¶1. (C) Liaoning Party Secretary Li Keqiang, a front runner for elevation to the Politburo this fall and potential successor to President Hu Jintao in 2012,



¶4. (C) GDP figures are "man-made" and therefore unreliable, Li said. When evaluating Liaoning's economy, he focuses on three figures: 1) electricity consumption, which was up 10 percent in Liaoning last year; 2) volume of rail cargo, which is fairly accurate because fees are charged for each unit of weight; and 3) amount of loans disbursed, which also tends to be accurate given the interest fees charged. By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are "for reference only," he said smiling.

runlevel's picture

maybe its because SILVER will be the asset of choice? CB's dont have any silver... so going by the premise that theres a top in gold due to CB buying and that being an contrarian indicator wouldnt you then be able to say SILVER is the asset of choice?

NJBDeflator's picture

My new article "Welcome To The Future" touches on a lot of this stuff:


How do I submit a guest post??

Freegolder's picture

I think gold could settle at a much higher level, based on physical-only pricing, no more paper gold. We will watch together!

Margie's picture

Thank you for an informative post. I believe individuals should be buying gold and silver bullion. I encourage my friends, family, and associate to buy gold. I have been fortunate that I have found a supplier that caters to the small investor, . They have great service.

Gavrikon's picture

Die, Spammer!  Die!!!

fonzannoon's picture

Gold stocks and bubble in the same sentence. Now thats funny.

flacon's picture

Do you mean gold stocks, or stocks of gold?

fonzannoon's picture

gold stocks. the ones down fifty oercent year over year. 

Treeplanter's picture

Gold and silver miners have paid off very well since 2008.  Will sell what I have left on next dead cat bounce.  Then wait patiently for great bargains ahead of the best bull market in history.   Gonna be a fat cat.  Hooray for the 1%!

Implicit simplicit's picture

Good point. Buy low and sell high. Great opprortunity prior to the dollar being devalued again at the next Fed meeting. Gold and silver plays seem to be the most logical safe bet at this point.

FieldingMellish's picture

Only if the chart is upside down.