Gold is up over $140 per oz just in the month of October. The demand is driven by more than private investors but continued interest by central banks. The central banks of the developed world are still the dominant holders of gold, but that mix will change with the growing of foreign exchange reserves. The emerging markets have moved from precautionary holding of reserves in case of a crisis to now FX reserves being driven by exchange rate policies. The problem is that they do not want to hold all of their foreign reserves in dollars. Even small diversification into gold is driving the price higher. (Graphs from World Gold Council.)
Gold holdings by central banks declined for most of 2000-2008 period. The largest holders cut their exposure but now we are seeing a reversal in behavior. China has grown to be a larger holder than Switzerland. While there may be a decline in buying as the price levels get higher, the diversification motive will not change as long as the loose monetary policies and higher debt levels in developed countries continue.
Gold holdings by central banks declined for most of 2000-2008 period. The largest holders cut their exposure but now we are seeing a reversal in behavior. China has grown to be a larger holder than Switzerland. While there may be a decline in buying as the price levels get higher, the diversification motive will not change as long as the loose monetary policies and higher debt levels in developed countries continue.
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