Gold

Central banks scoop up gold

The importance of central banks purchasing a record 399 tonnes of gold in the September quarter for an estimated US$20 billion lies in fact the buyers are also the institutions which control the world’s paper currencies.
It’s going too far to say that some central banks are losing faith in the value of currencies issued by rival central banks, but that’s a thought for investors to consider because most asset purchases by central banks normally consist of buying and holding US dollars, yen, pounds, euros and other paper currencies.
But in one country it could be a case of the central bank making an investment in gold to protect itself from losses on its own currency.
Turkey’s buying-spree

Turkey, the biggest single buyer of gold in the September quarter is also a country with a rapidly declining currency caused by one of the world’s highest inflation rates, an annualised 85%, and rising.
The problem for Turkey is that its government is experimenting with a radical inflation cure – it is lowering interest rates just as the rest of the world raises them.
As cartoon character Homer Simpson might have said when he made a foolish decision “D’oh!”.
The Turkish central bank is countering the inflationary spiral created in part through government action by acquiring gold, 31t in the September quarter, taking its purchases this year to 95t.
According to the World Gold Council, central banks are buying gold at the fastest rate since 1967 which ought to be a reason for investors to think about their position because the institutions which print paper currencies are loading up with something else – the ultimate reserve currency.