Whose Buying Gold

As Investors Flee Gold ETFs, Central Banks Jump in as Bigger Gold Buyers

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Central Banks Jump in as Bigger Gold BuyersInvestors pulled out a record amount of money from gold bullion-backed exchange-traded funds (ETFs) this past February. A total of $4.1 billion was withdrawn from gold bullion ETFs last month, the largest single-month outflow since January of 2011. (Source: ETF Trends, March 6, 2013.)

Gold investors fled the market on speculation that gold bullion prices will plummet, as the metal’s future looks anything but bright—the theory being the global economy is improving and central banks will need to pull back on their easy monetary policies.

But, as investors sold ETFs in February, central banks around the world added to their gold bullion reserves.

South Korea added another 20 metric tons of gold bullion to its holdings in February—raising its gold reserves by 24% to 104.4 tons. Since June of 2011, South Korea has purchased gold bullion five times. (Source: Bloomberg, March 6, 2013.)

Similarly, central banks from Russia and Kazakhstan have been increasing their gold bullion holdings as the prices go down. According to the International Monetary Fund (IMF), the Russian central bank purchased 12.2 tons of gold bullion in January.

As the World Gold Council cites, central banks across the world ramped up their gold bullion buying; they bought 534.6 tons last year, 17% more than the previous year.

When you have the former biggest sellers of gold bullion, central banks, turning into buyers, it is nothing less than a bullish indicator.

What holds true is that central banks need gold bullion because countries around the world are in an outright war to lower currency values and thus central bank reserves are in danger.

I will turn bearish on gold bullion the day I find central banks have both turned to net sellers and stopped printing paper money out of thin air. Until then, I see the current correction in gold bullion prices as a great opportunity for investors.

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