How central banks impacted gold in 2012

TradingPub Admin | December 31, 2012

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So you've heard a lot about gold and have an interest in trading it? You may want to know about the recent purchases of gold that central banks worldwide have been making.

Strong Central Bank Activity 
One nation where the central bank sharply increased its demand for gold in 2012 through the start of December 20 was Ukraine, and the nation's financial institution boosted the amount of gold held by its international reserves by 230,000 troy ounces to 1.13 million troy ounces, according to the International Business Times.

The bank indicated that it is making the move "to avoid the negative impact of the global crisis on the economic development of the country as it … works on diversifying the components of international reserves in Ukraine."

Another country that made robust increases to its gold reserves was Iraq, which increased the amount of this precious metal it had to 31.07 metric tons from 5.8 metric tons in August and September, the media outlet reports. In addition, Brazil purchased enough of the precious metal to cause its holdings to double in size.

Global Gold Purchases 
The trend illustrated by these three financial institutions also applied to central banks across the world, as data provided by industry organization the World Gold Council indicated that purchases of the metal surged 9 percent in the third quarter from the previous period, according to a statement.

Data provided by the industry organization reveals that central banks worldwide purchased 97.6 metric tons of gold in the third quarter, and these financial institutions have collected had around 100 metric tons of the precious metal during six of the last quarters.

The data for the rest of 2012 up to that point - the first nine months of the year - revealed that central banks across the world purchased 374 metric tons of gold during the period, compared to 343 during the same time in 2011.

Growth Predictions 
Marcus Grubb, who is the managing director of investment at WGC, said in the statement that " In the medium term, the quantitative easing initiatives in the West and the continuing growth story in the East, particularly in India and China, coupled with the seasonally strong quarter coming up in Asia, are excellent indicators for further growth in the gold market."

Grubb predicted that the central banks of the world might purchase more gold in 2012 than in 2011, when these institutions bought 456 tons of the precious metal, according to the International Business Times. He said that the final amount bought during this year will rely on the fourth quarter.

The media outlet reports that the largest factor contributing to these banks buying these sums of gold is a desire to diversify their reserve assets, and that the financial institutions are expected to purchase similar amounts in the fourth quarter.

Central Bank Easing 
Another way that central banks worldwide could continue to affect the market for gold is through their use of monetary easing - or boosting the money supply in an effort to stimulate the economy. By putting more dollars into existence, many market participants are worried this financial institution could erode purchasing power by making inflation track higher.

On October 24, the Federal Reserve Bank announced its plans to purchase $40 billion in mortgage-based debt per month and hold interest rates near zero for as long as it takes to push the jobless rate down significantly.

The Bank of Japan recently increased its asset-based stimulus efforts for the second time in two months, and the European Central Bank has stated that it is in a position to purchase the sovereign debt of nations in the region, according the news source.

Now that you have learned something about how central bank purchases could affect gold prices, you can obtain additional futures trading education at TradingPub.