That doesn’t automatically mean gold prices will rise next year, although it certainly helps. But it at least provides a source of buying that should help limit any downside, some said.
Gold was on the skids for much of the 1990s, and the slide was compounded by selling from central banks, particularly those in Europe. This selling continued early in the last decade even as gold prices picked up, but gradually the selling abated and buying picked up.
“Anywhere from 10% to 15% of annual supply in the gold market was coming from central banks every year,” said Nicholas Brooks, head of research and investment strategy with ETF Securities. “In the second quarter of 2009, central banks became net buyers in the gold market—primarily emerging-market central banks with balance-of-payments surpluses. They are now buying close to 15% of annual supply in the gold market. So you’ve seen a…30-percentage-point switch of a net supplier becoming a net source of consumption in the gold market.”
And that, Brooks said, “puts to some degree a floor under the gold price.”
Central banks collectively bought 77.3 metric tons of gold in 2010, said Natalie Dempster, director of government affairs with the World Gold Council.
“That was the first net purchase by the official sector in two decades,” she said. Previously, central banks collectively were selling between 400 and 500 tons a year on a regular basis, she added.
Official-sector buying surged to 456.8 tons in 2011. This means a swing of close to 1,000 tons from some years when these banks were net sellers, she said. To put that into perspective, the swing is more than a third of the global mine output last year of 2,826.5 tons, she added.
Central banks are buying at roughly the same pace in 2012 as a year ago. Purchases were 373.9 tons through the first three quarters of the year.