As the price of gold bullion corrected in March, central banks around the world seized the opportunity to buy. The International Monetary Fund released a report that revealed that, in March of 2012, central banks not only took advantage of the lower prices in gold bullion to buy, but they were also buying in large quantities.
Mexico bought 16.8 tons in March, while Turkey added 11.5 tons and Kazakhstan picked up 4.3 tons. Russia has been fairly vocal about its gold bullion buying and remained true to form by purchasing 15.6 tons of the shiny metal last month. click here for related details.
In total, 57.9 tons of gold bullion was purchased by central banks around the world in March. To put some perspective on this number, in 2011, central banks bought just under 440 tons of gold bullion, as reported by the World Gold Council. This was close to a 50-year high in gold bullion purchases.
It is, of course, difficult to extrapolate from March’s numbers, but taking into account the first three months of the year, it is possible that, should this pace of gold bullion buying by the central banks around the world in 2012 continue, the total will reach 700 tons of gold bullion purchased, which would make 2012 a record year.
Of course, many of the G7 nations—U.S., U.K., Canada, France, Germany, Italy and Japan—are confused by these purchases. Their contention is that gold bullion is a commodity that actually does not have many uses outside of jewelry.
The nations outside the G7 have long histories and have lived through financial crisis and/or have been passed down stories of financial crisis from their ancestors. They understand that gold bullion has been used as money for 5,000 years. They believe that gold bullion is not a commodity, but a monetary unit. In times of crisis, money is debased by money printing, which results in citizens losing their purchasing power and eventually everything that they worked for. Gold bullion preserves purchasing power, because it cannot be printed or manipulated.
They understand from the past that the money printing that is currently taking place is on a scale never witnessed before in history. Trillions upon trillions are being created by the U.S., Japan, the U.K., and the European Union. The contention is that there are no consequences to this money printing, but these central banks who reside in countries that have a long history beg to differ. They are speaking with their actions, not words.
The other peculiar thing to note is that, while the G7 central banks claim that gold bullion is not money—and Federal Reserve Chairman Ben Bernanke went further to deny that gold bullion was money when asked directly by Congressman Ron Paul—the G7 countries have not sold one ounce of gold bullion in the last five years.
The 17 nations of the European Union hold the largest amount of gold bullion in the world at just over 10,400 tons, while the central bank of the U.S. holds the second largest amount of gold bullion in the world at 8,133 tons.
If gold bullion is just a commodity, then why not sell it? I think investors, as the saying goes, should do as central banks do, not as they say.
The bull market in gold bullion, in my opinion, is alive and well and has a lot more to go on the upside, because of money printing, which has and will continue to destroy purchasing power, as it has done in the past.
I’m following what central banks are doing.