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Central Banks Purchase Most Gold in 2012 Since 1964

According to data from the International Monetary Fund, the central bank of Mongolia increased its gold bullion reserves to the highest level since August of 2008. The country has been on a three consecutive month buying spree in the gold market with reserves increasing from 1.5 metric tons to 5.8 metric tons, an increase of 287 percent.

Additionally, the central bank of Russia has also been purchasing gold bullion. The central bank bought seven tons of the yellow metal in February, bringing the total gold bullion holdings to 796.9 tons.

Turkey has begun using gold bullion as collateral, increasing its reserves by 5.7 tons in February, bringing total holdings to 375.7 tons.

Data from the World Gold Council indicates central banks around the world purchased 534.6 tons of gold bullion in 2012, the highest amount since 1964.

China’s central bank holds only 1.7 percent of its reserves in gold bullion, indicating the country, which has the largest reserve in the world at more than $3 trillion, could continue buying in the physical gold market for some time.

Compared to the gold bullion holdings of other central banks, China is still far behind. The U.S., Germany, and Italy hold more than 70 percent of their reserves in gold bullion. As the price of gold bullion is dependent on physical demand, the prospect that China could significantly increase its bullion reserve holdings is a very bullish aspect for the precious metals.

Amidst this buying environment, central banks around the world are printing paper money and working to depreciate their currencies to jumpstart exports.

The fiscal stimulus efforts of the Federal Reserve, which is a similar effort, has put concerns of inflation into the markets for some time, increasing the physical demand for precious metals.

Central banks are buying gold bullion at a rate not seen in 49 years, during which time the price of gold bullion has declined.

Recovery in the job market, to which the Federal Reserve has announce it will tie its fiscal stimulus efforts, is questionable for many analysts. In February there were 1,422 mass layoffs in the U.S. economy, which involved 135,468 workings. There are currently more than five million Americans working part-time not out of desire but because the full-time labor market has become too cumbersome. The indication is the labor market is not improving in the manner and method necessary for an exit strategy for the fiscal stimulus from the Federal Reserve, increasing the risk that a prolonged easing program could indeed produce inflation.

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