LONDON (Commodity Online): Till recently central banks of all countries used to be the enemies of gold because they always tried to stop the bull run in gold.

But the 2008 recession has changed the world for central banks and gold. Now, central banks are the first ones to rush to buy gold as they want to keep their reserves in the from of yellow metals instead of the traditional dollar.

So, the global markets witnessed a gold buying spree from central banks like Reserve Bank of India and central banks of Sri Lanka and Russia.

Since last year’s financial crisis, there has also been a buying frenzy among many of the world’s multi-billion dollar hedge funds, as well as plenty of other institutional investors and of course legions of individual speculators.

All have been buying in record amounts. And most are venturing into the gold sector for the very first time.

Similarly, gold-backed Exchange Traded Funds (ETFs) are attracting ever-increasing numbers of rattled investors, who view gold as the ultimate hedge against a weakening US dollar and continued instability in the US economy. The prospect of a continuation of low interest rates for some time to come is also adding to the yellow metal’s universal appeal. 

Among the various other movers and shakers in the investment industry who are boldly endorsing this new gold rush is London-based Evy Hambro, who runs two of the world’s largest commodities funds, BlackRock World Mining Fund and the Gold & General Fund.

Another gold advocate who has his finger on the pulse of Europe’s largest financial marketplace is Nick Brooks, head of research and investment strategy at ETF Securities in London. He agrees that the world is witnessing a global paradigm shift. One where major sovereign investors (state-owned investment funds), in particular, are increasingly hedging against an ailing dollar in favor of bullion.

“India is likely just the tip of the iceberg with China, Russia and other major emerging market central banks indicating their interest in building their holdings of gold as part of their diversification away from the US dollar,” Brooks says.

Now there is considerable speculation that other major buyers will emerge among the world’s largest central banks to soak up the balance of the IMF’s overhang on the market.

Certainly China is among them. Its official policy is to exchange a larger percentage of its $2.7 trillion in mostly US dollar-denominated currency reserves for hard assets. China is already the world's leading hoarder of gold, having revealed in April that it held 1,054 tonnes - a jump of 76% from its last official tally six years earlier.

Embry, who has been following the gold sector for over 30 years, believes that Chinese officials must be keenly eyeing the remaining 200-plus tonnes of gold that the IMF has up for grabs. Yet, he notes that Beijing has to date proven to be a shrewd and "very clandestine" buyer that prefers not to over-excite the gold market by signaling its intentions to speculators.

In fact, China's central bank was positioning itself to try to buy, at a discount, all of the gold that the IMF originally had for sale before India stole a march on everyone with its brazen buying spree.

Central bank officials the world over are waking up to the fact that their predecessors acquired gold reserves in the first place to stave off currency devaluations. And that impetus is once again taking on a heightened importance against a backdrop of continued economic and currency uncertainty, and inflation concerns. This is the conclusion of a recent report by the London-based World Gold Council.
(Source: Mineweb)

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