Central Banks Buying Gold

Starting in 1989, the world's Central Banks became steady net sellers of their gold reserves which had been accumulated over the years.

In addition to official gold sales, the banks also began to engage in gold leasing contract with bullion banks such as J. P. Morgan, Goldman Sachs, et al. The gold was leased, and the bullion bank sells it in the market, paying the lease difference in a sort of gold carry trade.

And now for something completely different, it appears that the world's central banks may once again become net buyers of gold, after a twenty year campaign of selling gold from their vaults into the public markets, creating a steady downward pressure on the price of gold, that contributed to its long bear market.

There is some thought that the central bank gold sales had been designed to support the strong dollar as the reserve currency of the central banks. Gold had been viewed as a threat. Documents which have been disclosed and quotations from the transcripts of central bank meetings do support a concern that the price of gold could rise, destabilizing the fiat regime which had been in place since the US went off the international gold standard in 1971.

My Comments: Interesting data. If the central banks that had been selling gold into a bull market are now close to becoming buyers, what does that mean for the price of gold??? This might explain the recent rise over $1,000. Once price broke out of its wedge, it took off. This reminds me of what Jesse Livermore wrote…(I’m paraphrasing)…Price usually reacts and the “why” comes later. The insiders start the buying and then let the public in on it.

That is why price is the best gauge of markets. Price reflects all information at a given period of time. It might not reflect all available information to you or I, but all available information given to “someone”.

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