Current Price of Gold May Encourage Central Bank Buying

Current Price of Gold May Encourage Central Bank Buying

The gold price hit record highs in 2011 reaching a value of over $1,900 a troy ounce. The current price of gold is hovering around the $1,650 mark and has been fluctuating more than usual. Scores of financial analysts still believe that the value of the yellow metal will continue to rise throughout 2012 and in the coming years, perhaps at a somewhat slower pace than the record rise since 2001. Financial analysts are also predicting that central banks around the world will take advantage of the current price of gold to buy up large quantities of the metal while it is more affordable.

Nick Moore, head of commodity research at the Royal Bank of Scotland Group Plc, is one analyst who believes that the value of gold will encourage central bank buying similar to that experienced in 2011 when 439.7 tons of gold were purchased by central banks. In recent years, the central banks of Russia, India, China, and Mexico became net buyers of the metal instead of net sellers. The considerable rise in gold purchases is a significant reason that the price of the bullion was propelled to record highs.

Precious metals strategist Matthew Turner said that central bank buying “seems to confirm there’s an appetite now among emerging economies with large forex reserves to add to their gold reserves. Gold is seen as one way in which to diversify away from the dollar or euro-denominated assets.”

The current price of gold has not discouraged many investors. Analysts are predicting that the metal is set for another upward swing. Adrian Day, president of Adrian Day Asset Management, said, “After the dramatic drop this week and all month gold is due for a bounce. Given the massive monetary easing by central banks around the world this is a good environment for gold.”

Individual investors also see the importance of diversifying with valuable commodity investments such as gold. With mistrust in the financial and banking sector, and fear that the stock market is far from reaching stability, investors continue to create a demand on the metal. Fear and uncertainty about the U.S. dollar and stock markets does not bode well for conventional investments that do not have solid value. These same factors tend to support gold prices and offer investors a financial security net. The metal continues to provide an attractive alternative for individual investors and government central banks around the globe.