Basic rules of economics are at play with gold bullion prices; when demand rises, prices increase. We currently have a significant amount of demand for gold bullion by both investors and central banks, but the supply for the yellow metal is very limited.
The importation of gold bullion into Mainland China from Hong Kong increased 94% in 2012 to a new all-time high. According to Bloomberg, 834.4 metric tons of gold bullion was imported into Mainland China in 2012, compared to only 432.2 metric tons in 2011. (Source: Bloomberg, February 5, 2013.)
In the first half of its fiscal year 2013, demand for gold bullion increased 29.15% in Pakistan. On a month-to-month basis, the appetite for gold bullion increased 121.96% from November to December 2012. (Source: Bullion Street, February 5, 2013.)
Standard Bank Plc notes that the demand for gold bullion in January 2013 was higher than usual. The Standard Bank Gold Physical Flow Index indicates that gold bullion demand in January increased to the highest it’s been since November 2012 due to “good” buying in South East Asia. (Source: Standard Bank Plc, January 22, 2013.)
In addition to this, the central banks, which I believe will become the biggest driver of gold bullion prices, have been buying more of the metal. In the last six out of seven quarters, central banks around the world have been purchasing about 100 metric tons of gold bullion. (Source: International Business Times, December 28, 2012.)
Let’s remember, central banks used to be the net sellers of gold bullion; now they are buyers. Let me give you some idea about the amount of their buying: the central bank of Ukraine increased its holdings of gold bullion to 7.72% in 2012, compared to 4.36% in 2011. Similarly, the central bank of Brazil doubled its holdings of gold bullion (which it keeps in reserves) from October 2012 to November 2012.
Gold bullion is becoming the “go-to” source for safety once again. It looks to be the only option to store wealth in a world where central banks are in a rush to devalue their paper currencies. Don’t listen to the “noise” about gold bullion; just look at the supply and demand situation, and you’ll see the fundamentals for gold bullion are quite strong.
