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Guest Post: Does Central-Bank Gold-Buying Signal The Top Is Near?
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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Au Ag Au Ag Au Ag
Me so horny. Love you long time.
Is it that the Big Boys know that the largest buyers and sellers of any asset class are the central banks and that the only way these Boys can unload/load their own massive holdings is to sell/buy to/from the central banks? Look at who the biggest buyers of government debt are now - central banks. Expect a blowoff top in these as well and rates will start heading up with the red herring being Lieborgate.
Retail is still behind on understanding how all this stuff works.
Who are they buying it from? Certainally not the miners.
Ok RoboTard, I'll bite.
It will be interesting to see what is of value when it comes to light that even allocated physical gold accounts have been rifled by the degenerated custodians. MFGlobal is just the start.
Then you'll see what physical is really worth. And we're not talking $3000/oz for gold. If you don't hold it, you don't own it.
Enjoy that treasury bubble, oh and that bond bubble. Lol.
One more ( lack of liquidity) Thrust up. Then Shitsville.
Let the back filling begin. In my lifetime ,( i ) have never seen a, 10 year note under 2 %, lest we discuss the current 1.491 ! is absurd.
If you look at the ( jist) of Fridays move, a lot of it was short covering, and squaring up/repositioning. ( Momentum wasn't anything special)...
Central banks are buying ... but who is selling? The price is going down so we can safely assume that there are more sellers than buyers.
but who is selling? The price is going down so we can safely assume that there are more sellers than buyers.
***********
Actually the price is drifting sideways and has been since March 2011-the range has been wide 1600-1900-
How can there be more sellers than buyers?
Sentiment is where you need to be looking and it is at extreme lows-which has in the past marked a bottom and the beginning of new highs-
Maybe this one is different?
http://bit.ly/PXY0pJ
The question nevertheless remains.....why would central banks and nations be buying if people are dumping?
There is a lot of unsold housing in the USA and China that has no buyers. Volume on US and other stock markets has plunged. The USA bought 61% of its own debt in 2011 because there were no real buyers. But have you heard of gold not finding a buyer?
Enjoy the link. http://www.dqnews.com/
In a world starved of good, clean collateral which needs no appraisal between parties, there is only one asset class left and that is gold.
Central bank buying does not indicate a top in gold but a fast approaching bottom to the system.
Peter Pan
Vote up!
2Vote down!
0In a world starved of good, clean collateral which needs no appraisal between parties, there is onl < The world is flush with "Capital". No one Eg; Banks and Multi National Corps. want to " Disseminate" it...<
First of all there is a difference between capital and collateral. Secondly, banks do not really want to lend because there aren't any really good projects to lend on in a world where overcapacity is the norm. In addition nobody seems to want to borrow other than for the purpose of staying afloat with other peope's money.
I have to appologize Peter Pan, My post was partially disolved. Must be that solar anomally. I'm currently in Sunlight @ 36k.
Based on your comment, I would say we are in general agreement. Collateral is is tangible, capital is hedged.
I'm not interested in semantics. That would be highly " synthetic" of me! GET IT?
No problems. I get it.
Central Banks do not need Gold they have the military and can implement a digital currency. They may be using Gold as a hedge during the time they move the world off of the dollar standard--to deal with other countries.
100% Correct. Has anyone ( mainstream media) , discussed the current ( M/E) currency strategy?
I hate to tell you this, but the paper money sloshing around the world is effectively digital and good luck to you and the others if you believe that wealth can be produced by or stored in a computer.
Can you please Cc. The President of the ( ECB ) Mario Draghi, your comment? Sterilization of funds is so passe'.
The ECB is " by default" The EURO AREA Central bank. As Tyler so" succinctly" posted the Fair value of ( eur/usd ) in Cental bank holdings.
Dear YenCross, I am not entirely sure of the gist of your comment. I would like to respond if you could amplify a little.
My interpretation of your remark , was that the world is awash in liquidity. I was directing your comment to the " banksters" that be?
I ( hope ) Respectfully, that settled any cunfusion...? ( After all I realize it's pub time { 08:45 p.m.} in the U.K.)
Enjoy your beer and may your Olympics be a resounding success and not just a crcus for the masses.
I'm not English , I'm en/route to Brisbane Au. That was why I mentioned the Solar Anomoly. I'm currently @ 36k , and using my so called ( Smart Phone).
The amount of debt the ECB vs the Fed has on their books, Implys a SWAP rate of 1.1800 euros to the ( US) dollar. There is so much peripheral ( southern junk) ,debt that should be much lower!
Crocus -- like at a funeral?
By the way, armies cannot implement functional societies unless you think that US intervention in Afghanistan has been a screaming success.
Armies have a tendency, to do what they want!
So Vietnam, Iraq, Afghanistan, have been successes for the USA? Or have they been successes for the military industrial complex?
I was about the congratulate zh on the first bearish gold piece ever posted here then I stupidly kept reading. [/never mind]
Let me put it this way...If, I were a millionaire, 3/4 of my wealth would be in (physical) precious metals!
Where to keep, another matter
Anybody keeping that much wealth in a single asset class as volatile as gold is totally crazy.
I challenge you to find any successful multi-millionaire who has such an overweight position in a commodity. Heh, even Eric Sprott is not that stupid.
As robo tard lurches forward, to grasp every last " CENT " to pay his bills?
I challenge you to find any successful multi-millionaire who has such an overweight position in a commodity. Heh, even Eric Sprott is not that stupid.
*************
You call yourself a trader and don't understand that dollars are a commodity-no different than oil?
You trade your dollars to an oil company for gasoline--the oil company trades their gasoline to you for dollars-
So if a multi millionaire has multi millions in his bank account would he be overweight a commodity in your mind?
Good comment, +1 greenie.
Clueless millionaires have 100% of their wealth stored in paper debt iou's, traded in a rigged casino -- which run off a printing press! How's that for genius? Yet they see gold as "too volatile".
It seems to them that it's working because their lifetime is a short time horizon, and they don't know history even going back to the 1970's.
The US gov has defaulted 3x in the last 100 years. WHEN, NOT IF they do so again, you can say good bye to those paper millions. Hope it was easy come easy go, for their sake.
Challenge accepted:
JIM ROGERS.
BEHIND CLOSED DOORS:- WE ARE MOVING INTO A NEW ERA WHERE GOLD WILL BECOME A NEW STANDARD OF MEASURE AGAINST ALL ODDS AND MANIPULATIONS OF ALL OTHER ASSETS BY CENTRAL BANKERS AND FINANCIAL INSTITUTIONS. IN FACT RUMOUR HAS IT THAT GOLD WILL BE CHARACTERISED AS THE BEST COLLATERAL EVER SOMEONE CAN PROVIDE AS A GUARANTEE OF PAYMENT. ASK FRAU MERKEL AND SHE WILL BE ABLE TO EXPLAIN THIS NOTION SLIGHTLY BETTER THAN ME....
there will be MANY TOPS in Au...
before it forms its true bottom @ sub $400 !! who knows maybe a double bottom of $250 ! (1999). 1st bottom bc of the party likes its 1999 internet mania....this time around bc of a depression caused by the central bankers with their PRINT FEST...
ok, they were "just following orders" from the "ONE". the QEorganizer...LOL !!!!
after it double bottoms....watch out for $5k+ due to hyperinflation....10 yr to 20% after visiting 0.5%.....Weimar Republic, we will all be zimbabwean "starving BILLIONAIRES".
but, but, Bernank said gold is just an archaic relic, what gives?
The CB can buy all the gold they want. When the currencies fail then we the people, or the govt if you prefer, will take the gold from the CB.
The world is a lot different than 1980 or 1929.
The peoples of India and China will continue to buy Gold and Silver so will the Arabs and the Jews. Lets not forget the rest of Asia. Russians, Brazilians and the assorted developing nations will keep buying too.
TPTB will continue to manipulate paper Gold and Silver with their assorted tools, ETF's COMEX, LMEX etc
However, there is only so much physical PM's available, eventually the paper PM con can no longer keep the dynamics of physical PM supply and demand at bay.
Then the price pops.
If everyone is buying then how can the price be going down since August 2011 which is almost a year?
2 years and 9 weeks, and you're still that clueless? The price is based on paper derivatives. Start reading fofoa and get your head extracted from your sphincter.
Aw, why do I bother. Sheeple can never learn.
Paper pricing is one thing, loading up on tons of gold is another. They can't be that efficient to be able to load up tons of physical and keep the price down. Something has to give and something is not right. My guess is this tonnage is not being physically delivered and that's why the farce continues. There is no way to buy this amount of physical and keep the price down.
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I read the book, The Reagan Diaries, which follows Ronald Reagan's 8 year term through
his daily dairy entries, and lo and behold, early on at page 25 comes this obvious bombshell
from economist Arthur Laffer: "Art Laffer dropped a grenade on his colleagues when he said we weren't
going to solve the fiscal program until we returned to convertibility of money for gold. I would have
liked to heard the discussion among the economists after I left" - Ronald Reagan
what is it that you do not understand? paladin
at page 25 comes this obvious bombshell
from economist Arthur Laffer: "Art Laffer dropped a grenade on his colleagues when he said we weren't going to solve the fiscal program until we returned to convertibility of money for gold. I would have liked to heard the discussion among the economists after I left"
Page 26 - "Not long after that George Bush Sr. had me shot, so I just shut the fuck up about everything and did what I was told for the remainder of my tenure as Pesident. It fuckin' sucked blue whale boner, but it beat being in a box."
I have the book....
please post it.....page 26..
I do not have the book with me....it is at the office....in the morning I will look it up.
SILENCER is your name...just post page 26
everybody on ZH ......I will post it..but will you...
so I will call you out....you are a hack....I though this was a adult site...
I was wrong once in my lift time.....I thought this was a adult site.
SILENCER has proven me wroug
SILENCER.......you have 24 hours.
post page 26
Jesus dude, you don't know when someone is pulling your chain?
But GHWB was definitley in on the Reagan whack-attack
Silencer,
Nice one. Very funny.
Whatever you do don't tell him about page 27.
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