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With the chances of a second financial crisis increasing, and analysts suggesting that the price of gold could reach $2000 per ounce within 12 months, it is only natural to find that some of the central banks are ...
With the chances of a second financial crisis increasing, and analysts suggesting that the price of gold could reach $2,000 per ounce within 12 months, it is only natural to find that some of the central banks are increasing their gold reserves, and cutting back on investment in reserve currencies. This suggests that there is more chance of the banks being able to withstand a second economic downturn, or at least managing better than in 2008.
The central banks have made purchases of gold which has quadrupled the amount of gold that they hold. The major banks purchased around 70 metric tons of the yellow metal in one quarter-year, which makes the 14 tons bought last year look paltry. Their total purchase for the first half of 2011 equals nearly 200 tons.
This is another reminder that banks are dependent upon gold when the economy is slow. Until the last months of 2008, banks had in fact been selling their gold bullion. Modern bankers viewed gold as a medieval form of stock, and were keen to invest in more up-to-date commodities. As gold was at a relatively low price per ounce between 1990 and 2008, banks chose to dispose of some of their gold. They are now having to purchase this stock again, at much higher prices.