Best Of 2011: Central Banks — The Hidden Gold Demand Grows

December 27, 2011

Editor's note: This story originally ran on Nov. 21 and was the second-most-read story on HAI in 2011.




Impact of central banks buying gold becoming biggest factor behind price appreciation; more so than investor and jewelry sales.

It’s that time of the quarter when we dig deep into the demand numbers for gold provided by the World Gold Council. The headline for gold bugs is generally a good one. Even with the average price of gold more than $1,700 for the quarter, demand was up 6 percent year-over-year, with strong demand from anything related to investment.




Looked at on percentage terms, real growth of physical investment fell 10 percent from this time last year due to pullback in jewelry demand.




But that’s not the interesting story here. We all know, up until this point, that investor demand for gold and the subsequent rise in prices has been fueled by the search for safe-haven assets around the globe as uncertainty about the economy in Europe, and frankly everywhere else, inspires panic.

The really interesting story is this: Central banks remain consistent buyers of gold. But where are they on the demand chart? They aren’t. Because central banks have been net sellers of gold, for ages, they’re not even listed as a source of demand.

Here’s a bit of historical context for the “traditional” role of central banks in the supply-and-demand equation:


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