Why Central Banks Will Keep Buying Gold

The IMF will likely find eager buyers for all of those ounces of gold that they continually threaten to dump on the market. Not only have we seen foreign governments such as China and Russia increasing their gold reserves lately, but Forbes just reported the following:

Central banks may be justified in increasing their gold holdings to 40-50 percent of their reserves, a senior executive of the industry-funded World Gold Council said on Thursday.

‘Central banks are justified in having high gold weightings. They are justified in having a 40-50 percent weighting in gold,’ Marcus Grubb, WGC’s managing director of investment, research and marketing told delegates at a conference organised by ETF Securities.
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He said the current macroeconomic environment supported gold buying: ‘It is not only about the dollar, not only about diversification, but also about future inflation,’ he said.

There were signs that a number of Asian central banks were adding to their gold reserves, he added.

So while the manipulators are trying their hardest to keep a cap on the advancing price of gold, the cumulative buying power of central banks, foreign governments and ETF investors looks ready to soak up any sales. Of course, most of the threats to sell IMF gold are just that and rarely come to fruition. While gold is a clear threat to those clinging to the power afforded them by their printing presses, it is becoming increasingly difficult to perpetuate the manipulation. Investors are wising up as fewer and fewer reconsider trading their physical metal with intrinsic value for paper promises backed by nothing but faith in corrupt and bankrupt governments.

The charade can only last so long and with each day passing, I feel we are getting closer to the day of reckoning. Whether this comes in the form of a Comex default or other unforeseen event, wealth will at some point rush back into precious metals and overwhelm the relatively small market, pushing gold to levels hard to conceive at current prices. The next advance above $1,000 is likely to hold for good as gold soars towards inflation-adjusted highs of $2,300 and bids farewell to 3-digit pricing.

It will continue to be extremely profitable to trade gold stocks and futures, but investors would be wise to convert those profits into physical coins and bullion, thus acquiring financial insurance free of cost. Take delivery and put the manipulators out of business.

Nothing will unnerve the paper gold shorts more quickly and do more to undercut their confidence than to strip them of the real metal and force them to come up with more hard gold bullion to make good on deliveries. “Stand and Deliver or Go Home” should be the rallying cry of the gold longs to the paper gold shorts. –Trader Dan Norcini

Comments

[DONE_SONZ:]

The charade can only last so long and with each day passing, I feel we are getting closer to the day of reckoning. Whether this comes in the form of a Comex default or other unforeseen event, wealth will at some point rush back into precious metals and overwhelm the relatively small market, pushing gold to levels hard to conceive at current prices. The next advance above $1,000 is likely to hold for good as gold soars towards inflation-adjusted highs of $2,300 and bids farewell to 3-digit pricing.Agreed.

Jun 15 07:55 AM

[Vuke:]

Everyone awaiting a soaring price in gold should reain in their impatience. CB's are not only buying, they're also selling in order to ensure a smooth and stable ride in upward pricing.

Gold is their currency and they'll want to see it gradually rise for the benefit of all stakeholders, ETF's and stocks included. What better way to restore some liquidity to a battered market? They can't print it but they can control it.

Jun 15 10:24 AM

[doubleguns:]

Central banks going to a 40-50% holding? Hmmmm, maybe time to adjust my holdings up past the 20% point.

Jun 15 10:35 AM

[Mad Hedge F...:]

Maybe they've done their research? Brace yourself for the impending gold shortage. Gold shortage? Yup. Last year, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $980. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped. It all has the makings of a serious gold shortage for the future. Could last year’s downturn be a blip in the eight year bull market? When we break $1,000, which could happen any day now, watch out above!

Jun 15 10:41 AM

[5142152-337:]

Hey Jason, please read Brad Zigler's article (right above yours in this segment). According to Brad, your article is all wet! Of course its not, its a valid, lucid take on what is happening. Its amazing how two articles can be so at odds. Fortunately, the TRUTH can easily be seen by anyone with a brain. Thanks for writing it!

Jun 15 01:10 PM

[The Economi...:]

When is gold not a good investment? Try never. Always can have it.

Jun 15 10:42 PM

[zzhcct:]

Gold shortage? Yup. Last year, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons.
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Here, I want to know the reasons for the sharp decline in its gold production. And, how long will it last? What are the main productors in South Africa? In my eye, the Gold production in South Africa would not last long for the possible soaring pirces.

There is a shortage in the near future, not only for the event driven demand. I think the amount of gold reserves of the main central banks in weatern countries is overestimated.

Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce.
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I do not know much about the costs. What is the level of the costs before? What are these costs from? I do think the costs are the reasons for the jumping prices. Using another pricing model would make the cost usefulless.

When we break $1,000, which could happen any day now, watch out above!
Agree!

Jun 15 11:33 PM

[zzhcct:]

Different from previous situation where the demand for gold is seasonal which mainly driven by the festival and religious holidays, now, the gold market is driven by the non-seasonal and long=term investment. The question is, what the proportion of the central goverment's investment? and what is its role? To what extent can it influcne the gold prices?

Jun 15 11:43 PM