Does Central Bank Buying Signal the Top For Gold?

Central banks have added 1,290 tonnes of gold to their reserves since 2008 (excluding China and other nations that don’t regularly report their activity, as well as countries that have been quietly buying their own production). That’s a lot of gold buying: Does it signal a top?

Not at all, writes Clark. World central bank holdings are far below what they were in 1980. 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 that a lot more ‘catch-up’ buying is needed before we start talking about a top for gold on this basis.

Meanwhile, central bank gold buying will continue because the world’s central bankers know the eventual outcome of running the printing presses like there’s no tomorrow. 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 world is 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 dollar. Central bankers may lie to the public, but they know how bad things really are.

“Of course, gold will someday top… but we’re nowhere near that point,” says Casey. “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.”

To read Jeff Clark article: Does Central Bank Buying Signal the Top for Gold?

Tagged as: Central bank, China, Eurozone, Federal Reserve System, Fiat money, Gold, Reserve currency, U.S. Dollar (USD)