Central Banks - Net-Buyers of Gold for First Time in Decades

Gold could double in price sooner than most anticipate, and for a variety of reasons. More often than not, it is often wrongly assumed that the value of the United States dollar is the single driving force behind the price of gold. While this may have been a more viable position years ago, the ever-globalized world economy has thrown many more variables into the equation. On many occasions, we see that the United States Dollar is strengthening, yet gold prices continue to grow. The recent economic malaise that has hit the world, however, has put much into perspective. This is particularly true with respect to the credit woes of two major European Union countries: Portugal and Greece. With the bond markets in Europe suffering due to the lowering of these countries’ credit ratings, the strength of the Euro has fallen, especially with respect to the US Dollar. Simultaneously, traders have begun buying gold in vast amounts as a hedge against European currency risk. Traditionally, gold has been seen as a hedge against only the US Dollar, but in the globalized economy of the 21st Century, this is clearly not the case.

Faith in the sustainability of major currencies is no surprise. With the United States Dollar and the Euro, arguably the two driving world currencies, we see an intrinsic flaw in their structure: what is there to back their promise of sustainability? These two fiat currencies have no “real” value. The rest of the world has taken note of this, and the precious metals market has seen an upsurge of demand by the most logical of buyers: central banks. For the last twenty years, central banks were sellers of gold. Amid economic uncertainty and the safe-haven nature of gold investment demand has been growing at extremely fast rates, leading central banks to not only become net buyers once again, but in many cases to outright stop selling their gold. Without surprise, two of the major countries buying gold are China and India. India, in fact, bought out nearly half—200 of the 403 metric tons—of gold that the International Monetary Fund (IMF) put up for sale at the end of 2009. While these two countries represent the big players driving up the demand and subsequent price of gold, the central banks of smaller countries, such as Sri Lanka and Mauritius, have entered the mix, buying gold from the IMF as a safe-haven amidst the economic turmoil.

What does this mean for the average consumer? As more and more central banks begin to buy gold coins, bullion, bars, etc., the credit struggles for European countries continue, and continued economic uncertainty grows, gold and other precious metals will continue to rise and potentially double. That said, it cannot be stressed enough how important it is for the average consumer to begin seriously diversifying his or her portfolio with precious metals before while it is still affordable and in supply.

Start taking the steps today. Call United Gold Group at (800) 615-1513 today and talk to one of our Senior Account Executives to get on the right track to protecting you and your family for the future. Set up your Gold IRA or 401K today!