Doug Casey told me in January, “The only thing that scares me is that central banksare buying a lot of gold; they’re historically contrary indicators.” When it comes tobuying gold, central banks have such a poor timing record that they’re frequentlyjoked about as a contrary indicator.
Recently, they have been buying, quite literally, tonnes of it. Consider the following:
Mexico has purchased over 100 tonnes since February 2011.
Here’s the picture of what has transpired since the financial crisis hit in late 2008.
Central banks have added a net of 1,290 tonnes since the fourth quarter of 2008. This total excludes China and other nations that don’t regularly report their activity, as well as countries that have been surreptitiously buying their own production.
That’s a lot of gold buying. One has to wonder whether so much buying may in factsignal a top for gold. After all, a number of prominent analysts have claimed for sometime that gold is in a bubble and that it’s all downhill from here.
Not so fast. Like many mainstream reports, looking at the short-term picture usuallyleads to erroneous conclusions. Let’s put central-bank purchases into historicalperspective.
In spite of the recent activity, world central-bank holdings are far below what theywere in 1980. Clearly, a few years of net buying does not a bubble make.
The difference is greater than you might realize. Consider that since 1980…
It seems rather obvious that a lot more “catch-up” buying is needed before we starttalking about a top for gold on this basis.
Meanwhile, we think the trend of central-bank gold buying will continue. It’s not hard to see why: central bankers around the world know what it must ultimatelymean to run the printing presses the way the US has since 2008, even if priceinflation is not immediately obvious. It’s no surprise that they want to hedge theirbets, moving more reserves into something with actual value… something that can’tbe debased with a few keystrokes. The US dollar has been the world’s reservecurrency since WWII, and that’s beginning to change – the movement into gold isjust one facet of that change.
The entire world may indeed be beginning to understand that it’s operating on a fiatcurrency system backed by nothing. At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded in inflating theircurrencies faster than the Fed has inflated the USD. It doesn’t take Nostradamus toread this writing on the wall… and while the world’s central bankers can lie to the public, they themselves know how bad things are.
In fact, the WGC is so confident that central banks will continue to buy gold that it’schanged its reporting structure: it’s added “official sector purchases” as a newelement of gold demand, while eliminating “official sector sales” as a negative supplyfactor.
Of course, gold will someday top, and Doug Casey believes a bubble in gold andrelated equities is highly likely at some point, courtesy of the trillions more currencyunits governments will create in a desperate (and ultimately unsuccessful) attemptto stave off the Greater Depression.
But we’re nowhere near that point. There’s a long way to go before we startlegitimately using the “B word” (bubble) or “S word” (sell).
In the meantime, I suggest using the “B word” (buy) or “A word” (accumulate) tomake your decisions about gold.
While we’re convinced that buying gold and silver right now will providehandsome rewards, much more money will be made by investing in companiesthat mine these precious metals. For investors with an appetite for risk, thereally big paydays will come from speculating in the best of the best juniorminers.
You can get the latest scoop on the most promising juniors at the upcomingCasey Research/Sprott, Inc. Navigating the Politicized Economy Summit in Carlsbad, California.
Our own Louis James will be on hand to update attendees on his latest fact-finding mission, which includes upcoming visits to under-the-radar miningoperations in China that he believes could yield life-changing gains. Joininghim will be a host of financial luminaries and former government officials whowill highlight the risks and opportunities that today’s troubled economypresents. Reserve your seat before July 31 to receive $300 off of Summitregistration.
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