As world economies continue to struggle and gold prices tumble, one of the biggest current groups looking to buy gold are national central banks, starting with the Reserve Bank of India’s mammoth purchase of 200 tons of gold from the International Monetary Fund in October. This purchase is credited by some as being the key driver for the all-time record gold price of $1,227 per ounce at the end of November.
This huge purchase by the Indian central bank impacted the world gold market in several different ways. First, as news of the purchase spread, there was great speculation whether the remaining 203 tons in the IMF stockpile would be purchased by the central bank of China, Russia, Brazil, Sri Lanka or another country seeking to offset its obligations with gold holdings. This speculation fueled interest in gold and as a result, prices roared above $1,200 per ounce for the first time in history.
India is generally regarded as paying too much for the gold, a mistake that other countries are not quick to repeat in light of the current economic situations. China is believed to still covet this gold to reinforce its foreign exchange reserves, but it is waiting for the opportunity to purchase at a lower price.
As central banks look to buy gold during this correction period, investors should take note and look to do the same. With strong underlying support, bad worldwide economic conditions and low gold prices, investors could likely be purchasing the best investment of 2010 at its lowest prices of the year. With central banks poised to buy gold, private investors should be ready to buy as well.
Robert Stanley, Sr.
Senior Gold Specialist - Buy-Gold.org
