Central Banks becoming Net Buyers of Gold

As central banks around the globe attempt to implement monetary policy and manage their respective fiat currencies, speculation is being made that they will become net buyers of gold rather than net sellers.  Since the significant breakdown of the Bretton Woods exchange agreement in 1971, which removed gold backing from the US dollar, central banks have only been net sellers of gold for seven years. Many of those seven years have taken place over the past decade as central banks have been reducing their holdings of gold.

North America’s biggest gold conference, Denver Gold Forum, is being held from September 13-16 in Denver Colorado.

In the keynote speech at the conference, Jeffrey Christian, managing director of CPM group says central banks are expected to buy 6 to 10 million ounces of gold annually due to currency uncertainties.  He goes on to say this project is extremely conservative.  According to a metals consultancy, GFMS, central banks are set to become net buyers of gold this year.  Net official sales are forecast to drop to less than 20 tones, the lowest level since 1988. 

Emerging countries which have been building up foreign reserves in currencies are now diversifying into gold due to volatility in the dollar and other major currencies.  China has signaled growing interest in gold and other commodity based assets rather than stockpiling their currency reserves in more US dollars and dollar-denominated assets.

Reuters – Central banks seen becoming net gold buyers

FT – Central banks set to be net gold buyers

Denver Gold Group 2009 Forum

1 Comment on “Central Banks becoming Net Buyers of Gold

  1. The Bretton Woods agreement was held in July 1944 as WWII was ending. It was an agreement to keep currencies at fixed rates, with the dollar as the key currency. The dollar was redeemable into gold for foreign governments. The dollar was inflated thereafter and especially through the 1960s as a result of the “guns and butter” programs. The drain on the US gold supply was accelerating and depleting the reserves. Pres. Nixon closed the gold window in 1971, thus ending the Bretton Woods agreement. The dollar and gold were unpegged and allowed to float to free market prices. The dollar sank and gold rose from $35/oz to $800/oz.

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