Nov. 2011 Finance in Focus; Gold Thoughts

Posted on 5th November 2011 by Trevor Reynolds in Blog |Finance in Focus

According to data from the IMF, central banks continue to be significant net buyers of
gold. Mexico has added most to its reserves, with a net 83.7T of gold between
January and September 2011, followed by Russia, which has added 59.3T this
year, and Thailand, which has added 52.9T (see chart).

Central Bank Purchases of Gold So Far in 2011

Many market participants and non gold and silver experts tend to focus on the daily
fluctuations and “noise” of the market and not see the “big picture” major
change in the fundamental supply and demand situation in the bullion markets –
particularly due to investment and central bank demand from China, India and
the rest of an increasingly wealthy Asia.

The central banks of India and China are rightly believed to be again quietly
accumulating gold and the IMF figures do not include this potentially very important
and significant source of demand.

China’s gold reserves are very small when compared to those of the U.S. and indebted
European nations. They are miniscule when compared with China’s massive foreign
exchange reserves of over $3 trillion.

The People’s Bank of China is almost certainly continuing to quietly accumulate
gold bullion reserves. As was the case previously, they will not announce their
gold bullion purchases to the market in order to ensure they accumulate
sizeable reserves at more competitive prices. They also do not wish to create a
run on the dollar – thereby devaluing their sizeable reserves.

The deepening Eurozone debt crisis and real possibility means that central bank
demand will remain robust and may even increase in the coming months.

Central bank demand has put a floor under the gold market and will likely help propel
prices above the nominal record high in the coming weeks.

Comparing the gold market of today to the gold market of 1980 is ridiculous. Talk of the
gold bubble bursting remains extremely ill informed.

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