No wonder gold rose to $1,260 an ounce this week before easing. One by one, central banks are amassing major gold positions, proof positive that they want to participate in the world’s most glamorous asset class. Think central banks taking investment advice from global hedge funds.
This is probably a unique order in the investment jungle. The major seller, the Inteational Monetary Fund, does not look too sharp. It sold 541,700 ounces of the shiny metal in July alone according to Uncommon Wisdom, an investment service I’ve been monitoring.
So far in 2010 Russia has increased its gold holdings by 2.8 million ounces, $3.6 billion at current prices. Total holdings by the Putin govement total almost $30 billion. Saudi Arabia and the Philippines have disclosed new gold buying in 2010, plus India, Sri Lanka and Mauritius bought gold in 2009.
The World Gold Council seems sure the People’s Bank of China also is a major accumulator of gold. It makes sense that some portion of China’s $2 trillion in reserves would be held in gold. It is a hedge against global economic uncertainty. For others, it is a substitute for paper money. More recently, it’s been a hot investment.
This central bank buying reverses the prevailing trend of the past several decades of central banks selling excess gold to the speculators. Can China not be steadily and secretly taking a massive position? We will try to find out next week from a well-placed Hong Kong source.