The second quarter of 2012 was a record for central bank purchases. A total of 157.5 tons of gold was snapped up by various countries, up 63 percent from 96.7 ton in the first quarter of this year and more than doubling the amount purchased in Q2 '11.
In fact, it's the highest amount since the trend of net purchases began back in the second quarter of 2009. Official-sector purchases have become a respectable portion of gold demand—16 percent this last quarter, up from 7 percent the prior quarter.
The central banks of developed as well as developing countries continue to bolster their gold reserves. As the World Gold Council states:
"The rationale for any central bank holding gold is that it can be used as a source of capital if a currency is not redeemable or if a country falls out of favor with the international capital markets."
Given the world economic picture, central banks—just like investors—are hedging their bets with gold.
Of the top 10 countries with the largest gold reserves, half of them hold more than 60 percent of their foreign reserves in gold.
One country, Russia, held more than 60 percent of its reserves in gold as recently as 1993, but that number dropped below 5 percent as its foreign reserves grew from 2004 onward.
That trend seems to be reversing. During the second quarter, Russia bought 22.3 tons of gold. The country also had the largest increase in central bank purchases in the five years ending June 2012, with more than 500 tons purchased.