Whom to Believe on Gold: Central Banks or Bloomberg?Jeff Clark Russia isnt alone, of course. Central banks as a group have been net buyers for at least two years now. But the 2012 data trickling out shows that the amount of tonnage being added is breaking records. The following table lists the countries that have added to their gold reserves this year, while the second one tallies those that have been selling. Youll see how recently each country has reported, along with its percentage increase. This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than since 1964. The net increase so far is 17% greater than what was added in 2011, which was itself a year of record buying. Heres a picture of total central bank reserves since the financial crisis hit. Whatever golds price movements, positive or negative, central bank officials have continued adding a lot of ounces to their reserves. But this understates the case, because most of the data exclude China, as well as a few other small countries. China last officially reported gold reserves in 2009, so the totals in the chart since then exclude whatever its purchases might have been. Heres where it gets interesting: Bloomberg claimed that Russia has been a bigger buyer of gold over the past decade than China by a full 25%. Based on data about gold imports through Hong Kong and the fact that, for the most part, Chinese production doesnt leave the country, it seemed to me that this could not be right. The Chinese central bank holds an official 1,054 tonnes of gold in its reserves. Bloomberg states, based on IMF data, that China has added somewhere around 425 tonnes over the past decade. So Bloomberg is essentially saying that roughly 10% of the total gold available inside the country during that period was added to Chinas reserves. While its true that Chinese citizens are buying a lot of gold (though perhaps more silver), its highly doubtful that private parties bought 90% of all the gold brought to the Chinese market during this period. I think but cant prove that Chinas central bank is buying more gold and at a faster pace than its Russian counterpart. Jim Rickards, a highly respected author and hedge fund manager, said last month that China has probably already accumulated between 2,000 and 3,000 tonnes of additional gold reserves. If hes right, that would be roughly double or triple the 1,054 tonnes it reported in 2009 not the 40% increase Bloombergs numbers suggest. At the very least, we can say that the Bloomberg report left consideration of Chinas imports and production out of its report naming Russia the top gold buyer of 2012. Okaybut so what? Well, Jim thinks the next big catalyst for gold will be an announcement from China about its reserve position. Heres what he told me in late December: The catalyst for a spike into the $2,500 to $3,000 price range for gold will be an announcement by China, probably in late 2013 or 2014, that they have acquired 4,000 tonnes or more in their official reserve position. This will put China on an equal footing with the US in terms of a gold-to-GDP ratio, and validate gold as the real foundation of the international monetary system. Once that position is validated, gold will move to the $7,000 range in 2015 and beyond. Even if Jims estimate is high or China doesnt make an announcement until later, its clear that central banks around the world are buying gold in record quantities. It almost makes you wonder do they know something we dont? The Russians gave us some hints. President Vladimir Putin told his central bank not to shy away from the metal, adding After all, theyre called gold and currency reserves for a reason. The Chinese have been quiet on this topic recently, after being very vocal a few years ago. Heres a recent quote. Others have provided clues as well. Yes, were talking about the US dollar. Perhaps some investors have gotten complacent about the risks to the worlds reserve currency but not central bankers. Its not hard to see why: whether they admit it or not, central bankers must know what it means to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. Its no surprise they want to hedge their bets, moving more reserves into something with actual value something that cant be debased by a few computer keystrokes by an increasingly unfriendly government. The US dollar has been the worlds reserve currency since WWII. Thats beginning to change, and the movement into gold is just one facet of that change. The buying by central banks is exactly what one would expect to see as we approach the end of the dollar hegemony. The message from central banks is clear: they expect the dollar to move inexorably lower. It doesnt matter that its been holding up against other currencies or that the economy might be getting better. Theyre buying gold in record amounts because they see a significant shift coming with the status of the dollar, and they need to protect themselves against that risk. This leads to a second message: gold is not overpriced, in spite of the 500%+ increase since 2001. Indeed, with the recent correction, central banks are likely buying more, even as you read this. Clearly we should take notice. If central banks are preparing for a major change in the value of the dollar, shouldnt we? The fact remains that the US dollar cannot and will not survive the ongoing abuse heaped upon it by government planners and federal officials. That not only means the gold price will rise, but that many, if not most currencies, will lose a significant amount of purchasing power. This has direct implications for all of us. Embrace the messages central bankers are telling us the ones they tell with their actions, not their words. Buy gold. Your financial future may very well depend upon it. While buying gold will protect your purchasing power, your best bet at growing it substantially is to stake claims in little-known companies that mine precious metals. Thats how Doug Casey, Rick Rule, and other well-known contrarian speculators made their millions. To learn exactly how they did it and how you can too sign up for Downturn Millionaires, a free video presentation from Casey Research. linkwithin_text=Related Articles: 