Categories: Precious Metals
Topics: General Precious Metals

Will Central Banks Lead Gold Buying for 2013?

Central banks from around the world purchased more gold in 2012 than any year in almost five decades.  More of the same should be expected for 2013.  Based on the early moves this year, it could be another record period for buying, which should send the price of The Yellow Metal higher.

The most significant move so far for 2013, by far, has been the announcement by the Bundesbank that will be repatriating gold from the Federal Reserve in New York City and the Banque de France in Paris back to Frankfort.  The fundamental forces of supply and demand in taking so much gold off the market will have a bullish impact on its price.  With this move, Germany has reduced the supply of gold on the open market available for financial transactions.

Needless to say, this has been followed by other central banks.  The Netherlands has been reported to be the next to bring its gold back home.  That too will further reduce amount of The Yellow Metal, making it even more expensive for lending and other purposes.

This should also lead to more central banks buying greater amounts of gold.  Central banks should be the very institutions who should have no use for gold.  After all, central bankers are the ones in charge of maintaining the value of the fiat currencies for their country.  If central bankers around the world are buying gold, that is a tremendous admission to the investment community of the lack of faith in global paper money.  In other words, central bankers do not have much faith in the central banks of the world.

After half a decade of quantitative easing, that is easily fathomed.  Years and years of buying trillions and trillions of government securities has done little to lift the global economy from The Great Recession.  Gross domestic product for the United States just fell, Europe is still in a recession, and Japan is in the 23-rd year of “The Lost Decade.”

While these rounds of quantitative easing have not revitalized the global economy, it has laid the foundation for an unprecedented currency war.  Quantitative easing should drive down value of the host nation currency due to the creation of so much money without the corresponding economic growth.  From that, gold should rise in value as investors seek the traditional safe haven asset of The Yellow Metal when fiat currencies are weak.  Gold brokers such as Bullion Vault have seen high demand and Michael Cinnamond from PriceWaterhouseCoopers is extremely bullish on the future prospects of the precious metal.

By increasing the amounts of gold being owned, central banks around the world are increasing their arsenal for the currency war.  With robust gold reserves, central banks will be better equipped to intervene to protect their currencies.  The Bundesbank is adroitly keeping the price of the Euro low by bringing home its gold reserves, which will raise the value of The Yellow Metal.  From that, the Euro will fall, keeping German exports priced to sell.

Other nations will wage their own currency wars each’s cache of gold.  Buying it now with greater global inflation possibly coming could prove to be a shrewd investment.  Greater holdings of gold certainly lend more flexibility to central banks, no matter what the monetary strategy.  As a result, central banks should continue to lead the purchases of gold in 2013.

By Marcus Holland from the day trading website, FinancialTrading.com.