By Emmet Kodesh
Seeking Alpha
Someone recently dismissed buying gold as a fruitless matter of sentiment. This kind of “hard-bitten” practicality, familiar from Warren Buffett in recent years, is a gram of sense wrapped in ignorance. The Chinese generally are not sentimental people; those who operate the government of China have even less sentimentality. Yet the Chinese Central Bank has been buying 40 to 70 tons of gold monthly for the past two years, perhaps more. It is unlikely that they are ditching and hedging their “junk bond” Treasuries out of sentiment.
It also is not sentiment that leads them to conceal their official, for-the-record holdings of gold since 2009. They certainly have a stake in seeing the price of gold lag the markets to ease their continuing and increasing accumulation (about 66 tons/month in 4th quarter 2012).
Other nations buying gold in the past year and more include Brazil, Paraguay, Iraq, Venezuela, Turkey, South Korea, the Philippines and Mexico. Those who run Central Banks are many things but in their public function they are driven by power and gain, not sentiment. Radical devaluation of major currencies (the G8 and G20 are meeting to decide how to massage their race to the bottom) and central Bank suppression of interest rates in Europe and America has created a massive debt bubble and flight of institutional assets into markets whose out-performance is increasingly remote from structural and surface economic maladies. So bankers, strong hands and ordinary folks buy gold.