What Changes in the Gold Market? Who Is Buying? 

Julian Phillips

A look at the gold market over the last few months shows a new pattern of price movements: A strong rise, followed by a short consolidation before another upward move. This is unlike the saw-tooth pattern we are used to.

Since June, buyers have been coming in on the falling price and holding those falls to a narrower trading range. These buyers did not simply say, ‘Buy at a certain price,’ but appeared to ask their dealers for offers of gold and probably large ones too. Then these buyers took all that was offered to them. Their interest lay in the quantity of gold and not the price to be paid. “What sort of buyer,” asks Phillips, “would not be concerned at the price but only at the quantity?”

Phillips discusses traditional market buyers, investors, India and China, but concludes that central bankers best fit the bill of a gold investor that would not be concerned about price while looking to acquire quantity.

After all, central banks are diversifying the foreign exchange reserves of the nation when they buy. Gold has been always considered an important reserve asset; the top four wealthiest nations hold more than 70% of their reserves in gold. But they're not current buyers; it’s those central bankers who have too little gold as a percentage of their reserves in gold that are buying now. They don't want to have to depend entirely on the currencies they hold in the national portfolio when hard times hit.

Central bankers have always known that gold is money that measures the real value of currencies. Currencies are the weakening link in the money system. So when a central bank buys gold, it knows that it's simply changing one form of money for another. That’s why, relative to the available quantities of gold in the market place, central bankers have endless funds. They they want quantity. They have far too little; they want as much as possible without upsetting the market.

source: gold-eagle