1. Central Bank Buying
The biggest secular trend for gold is that central banks have become net buyers of gold over the past two years rather than net sellers.
Grubb says that central banks have imported 198.4 tons of gold in the first half of 2011 whereas two years ago they were selling 450 tons a year.Central bank buying is widespread. In the second quarter, Russia bought 26 tons, South Korea bought 25 tons and Mexico added 5.9 tons to its 100 ton purchase back in the beginning of the year. "Some banks," says Natalie Dempster, head of government affairs for the World Gold Council, "have been rebalancing as the percentage of gold in total reserves has fallen over time. Others are looking to diversify away from dollar-based assets, and with sovereign debt concerns continuing to grow around the world, gold's attractiveness as a reserve asset that bears no credit risk continues to grow." The U.S. has 74% of its reserves in gold compared to some emerging market economies like China, which owns 1,054 tons of gold, but it only makes up 1.6% of its reserves. India now holds 8.7% in gold reserves, but that figure is still considerably lower than the 20% of gold reserves it held in 1994. Dempster says that if China in particular were to reallocate its holdings to 3%, it would need to buy 1,000 tons of gold. China is the world's largest gold producer and vies with India for title of largest gold consumer. Nigel Moffett, head of Treasury at Gold Corp. says, "
-- Written by Alix Steel in New York.
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