Nowadays, it seems gold
has become the commodity the mainstream loves to hate. The headlines
have changed for the yellow metal. The gurus are rating gold as
“overvalued,” outright holding bearish views on it.
But
there are important fundamental reasons behind the multi-year move in
the gold prices that are not being recognized. I’ve harped on this in
these pages for long time; I believe gold prices will move higher thanks
to central banks around the world keeping their printing presses
running overtime.
The fundamentals of
gold’s demand have shifted. Central banks used to be net sellers of
gold. Now, when they are faced with the devaluation of the U.S. dollar
and their own currencies, and fluctuating reserves, they are running
back to gold, as there are not many options for them left to back their
currencies.
In November, the central
bank of South Korea increased its gold reserve by 20%. It bought 14
metric tons of the yellow metal for $780 million. The purchase brought
the central bank’s total gold holdings to $3.76 billion, or 1.2% of its
entire reserves. (Source: Bloomberg, December 4, 2012.) South
Korea’s central bank also purchased 16 tons of gold in July of this
year, and purchased another 15 tons in November of 2011.
Note that South Korea is not the only central bank
increasing its gold reserves; other central banks are doing the same.
To name a few; Kazakhstan, Russia, and Turkey’s central banks have added
gold bullion to their reserves. Especially Brazil’s central bank; its
gold holdings just increased to an 11-year high. According to the World
Gold Council, central banks around the world bought 373.9 tons of gold
in the first nine months of 2012!
But
that’s not all, the European central banks, which had previously signed
an agreement to sell 400 tons of gold per year, are holding back and
not selling. In September 2011, the banks, which signed an agreement
called the Central Bank Gold Agreement (CBGA), sold only 7.1 tons of the
allowable 400 tons. In 2010, they sold a total of 53.3 tons of gold.
(Source: World Gold Council, September 2011.)
Dear
reader, I believe the increase in gold price is due to fundamental
reasons. The pullbacks we are currently seeing are actually a good sign
that gold prices are not in a bubble. And I am looking at them as a
buying opportunity. People are losing trust in paper-based currencies,
because it’s so easy for central banks to just print more paper these
days. Hence why central banks are running towards gold! We are living in
an economic environment where countries are racing to devalue their
currencies—they continue to print more. Until they stop—and I don’t know
if they can—gold prices will continue to shine.
Article Source: Profitconfidential