In an article dated June 18, 2010 on CNNMoney.com, central banks around the world have been buying into the gold rush as fears of Europe’s debt crisis mount in conjunction with a slow worldwide economic recovery. All of this fresh buying has pushed gold to new record highs. Gold closed at a new record high yesterday at $1,248.70 and so far today has reached a new intraday high of $1,263.50.
For the first time since 1997 foreign central banks are net buyers of gold. Prior to last year they were all pretty much net sellers with the exception of China who has increased its gold reserves 76% since 2003. Most central banks like to diversify their holdings in order to decrease risk, but with the US dollar and the euro under extreme pressure due to money printing, central banks are turning to gold as a hedge against paper currencies. Because unlike fiat paper currencies, gold has an intrinsic value that cannot be manipulated by any governments’ economic policies.
The countries that are buying the most gold are Russia (26.6 tonnes 2010), Kazakhstan (3.1 tonnes 2010), Philippines (9.6 tonnes 2010), India (200 tonnes last year) and China (454 tonnes last 7 years).
Look for the trend to continue as sovereign debt crisis continue to mount. As the gold prices continue to rise rare gold coins will benefit as they tend to lag behind spot gold in their price action (this is not always the case but has been lately). As spot gold rises in value it signals the general public to buy, and most buyers of rare gold coins are private individuals not large institutions. The supply of rare coins in the market is limited by the fact that there are only so many of them in existence. Therefore relatively small changes in demand can have big effect on value. The more new private buyers that enter into the market for rare coins the faster the prices rise. This simple set of circumstances explains why rare gold coins tend to out perform gold bullion in the long-term.
We believe that everyone deserves a properly developed strategy for financial safety.
Chief Market Analyst, ITM Trading