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the price of gold has t he reaches its maximum level?
In January, Doug Casey confessed to me that the only thing he feared was that central banks buy much gold, since they are usually of the contre-indicateurs. Indeed, when it comes to buying gold, central banks are generally both suited to choose the wrong time, is why it mocks often they as ‘contre-indicateurs’.
[I do not like to refer to the gold in terms of tonnes rather than in terms of ounces. Gold is priced per ounce. But some players in markets, especially central banks, declare their transactions in gold in tonnes. A ton is equivalent to 32.150,7 ounces of gold.]
And recently, central banks bought literally tons of gold. I would ask you to consider the following points:
Net purchases by central banks exceeded 455 tonnes in 2011. It was with that the second increase their purchases of gold since 1988 (the first having occurred in 2010) and the largest since 1964.
The Turkey has added more than 123 tons of gold in its reserves since last October, and has bought 29.7 tonnes of gold during the month of April alone.
The Mexico has purchased more than 100 tons of gold since February 2011.
The Philippines have added 32 tons of gold to their reserves in March, their second largest purchase of gold in a single month. In addition to this, something that we know very little, the country buys part of its domestic gold production.
The Russia stops buying, and added 15.5 tonnes to its reserves of gold in May. Its total reserves now totalled 911,3 tonnes, the largest level since 1993.
The Thailand has increased its gold reserves by more than 80% since mid-2010.
South Korea bought 40 tons of gold since May 2009, an increase of 180% of its total reserves.
According to the World Gold Council, Central Bank Gold purchases amounted to a total of 80.8 tonnes for the first quarter of 2012, or 7 per cent of global demand.
During these past 12 months, their net purchases amounted to almost 20% of total annual production.
Central banks have added 1290 tons of gold to their reserves since the fourth quarter of 2008. This total excludes purchases of China and nations that do not regularly postpone their activity, as well as nations that buy their own domestic production.
That’s a lot of gold. I wonder if all these purchases may not actually represent a ceiling for the price of gold. After all, many analysts said that gold is in a bubble, and that its prices would begin to fall from now.
Not so fast. As is often the case for consumer reports, observe an event in the short term often leads to erroneous conclusions. Place back the purchases of gold by central banks in their historical context.
Despite recent purchases by central banks, their gold reserves are far below what they were in 1980. It is clear that a few years of net purchases are not sufficient for the development of a bubble.
The difference is greater than you might imagine. Be aware that since 1980…
The world population increased by 55%.
Global gold reserves have increased by 120%.
Foreign currency reserves have increased 650% since 1995 and today totaled $ 10.4 trillion.
It is therefore obvious that although other waves of purchases are necessary before we reach the ‘ceiling’ of the gold price.
In my opinion, the trend today follow the central banks is expected to continue, and it is not hard to understand why: the central bankers know what mean waves of monetary printing such as those undertaken now United States since 2008, even if the price inflation is not visible immediately. It is therefore not a surprise that they want to protect their bets by adding to their reserves something that has real value. The dollar has been the international currency of reference since the second world war, but things are about to change – and the fact that the central banks are turning to gold is only one facet of this change.
The world begins to understand what is happening to the fiduciary currency backed by nothing. The debt crisis intensified in Europe, and some countries are now able to inflate their currencies more than the Fed inflates the dollar. No need to be Nostradamus to understand this… Although central bankers may lie to the public, they know themselves how nothing goes.
The World Gold Council is convinced that the central banks will continue to buy gold, and recently transformed its reporting structure: he added ‘purchases of the official sector’ among the elements of the application, and has eliminated the Subpart ‘sales from the official sector’.
Of course, the gold price will end one day reaching its maximum level. Doug Casey himself is confident that a bubble on the gold and resources related will eventually appear, courtesy of the trillions of units of currency that Governments will be created in a desperate attempt to put an end to the Great Depression.
But we are not there yet. Plenty of water will flow under the bridge before that we can legitimately talk about bubbles and sale.
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