Why are central banks buying more gold than at any time in 50 years?

Gold bugs can hardly have missed the GFMS Gold Survey for 2012 that reported global central banks bought more gold in 2012 than at any time in the past 50 years, a net 536 tonnes of the yellow metal. The global money printers clearly know the value of the one money that they cannot create from thin air.

This is being hailed as a step by step move to a new Gold Standard. Before the global financial crisis of 2008 these same banks had an agreement to gradually sell-off their gold reserves. That has been reversed in the wake of the crisis and the money printing that has followed.

New gold buyers

The main buyers of gold are the rising powers of the East, including Central Asia and Russia, as well as Latin America. China has declared its intention to double gold consumption to 1,000 tonnes a year over the next three years while energy-rich Russia wants to exchange black for yellow gold. India is raising taxes on gold to dampen gold imports that are damaging its balance of payments.

Asia and the commodity producers holds two-thirds of the world’s $11 trillion in foreign reserves and its central bankers know very well that the US dollar rests on a pyramid of debt with a central bank that would dearly love to pass on all its problems to the rest of the world by devaluation.

Central banks are the guardians of the national economy unless they fall into bad hands. They are also usually pulled in many directions and try to find a balance that is the security they have as their mandate.

Gold Standard?

Buying gold is indeed the opposite side to the coin of printing money and dealing with the tidal wave of paper money now piled up in central bank balance sheets. Revaluing gold will be the way to keep balance sheets in balance as the inflation of paper money is exposed and raises general price levels.

That is why central banks want more of the yellow stuff now at current prices. It’s an instinctive flight to preserve value at a time of devaluing paper currencies, and it will play a vital role in preserving financial systems as the whole fiat money system comes unstuck in the bond crises and defaults that usually follow excessive indebtedness.

How long will that take? It’s anybody’s guess. But the normal pattern is for the weakest links to break first. Greece has already gone. Who is next? There is a long queue. Cyprus as too small to be a concern?
The real danger cases are Japan and the UK, huge economies with massive debts and independent currencies. The US is still futher down the line. 
By Goldseek