Central banks buy more gold in last 6 months than all of 2010

Germany proposed the following a few weeks ago: Italy and Spain sell their gold reserves in order to combat the Eurozone debt crisis. But neither country seemed ready to do that. The other central banks would not sell either, given that it is the perfect vehicle for diversifying reserves and covering their extensive debt.

According to data just published by the World Investment Council, European central banks have acquired 69.4 tons of gold this year, which is more than they bought all of last year. At this time, they have guessed right with their investments, considering that the metal has increased 33% this year after ten years of uninterrupted growth.

The big year in gold buying did not happen just because developed economies have bought gold to diversify their reserves, among other reasons. The majority of gold acquisitions were made by central banks of emerging economies. In particular, the Bank of Mexico has bought 100 tons of gold (the metal represents 4% of its reserves), Russia has acquired 41.8 tons, and Thailand bought 9.3 tons as of June. The European Central Bank, nonetheless, has opted to keep its 502 ton reserve intact.

The explanations are the same for the central banks and people on the street: the Eurozone debt crisis and doubts around global economic recovery have supported the high demand for gold. "While conditions in Europe remain fragile, it seems that exchanges have been renovated and that new commercial banks are entering the scene," said the World Gold Council, which predicts that the central banks "will keep buying gold for the rest of 2011."

And not just them. The demand for products replicating the returns on gold gets higher and higher. According to data provided by the World Gold Council, gold ETFs and similar products have made total purchases worth 51.7 tons due to increased investor demand. This explains why a product such as SPDR Gold Trust is already the ETF with the highest trading volume in the world, reaching a market capitalization of 76.7 billion dollars, which is greater volume than either Bank of America or Goldman Sachs.