Central Bank Gold Purchases to Remain High, Says Barclays

There is unlikely to be a “slowing down” of gold buying by central banks as significant economic uncertainty remains for the foreseeable future – according to Jon Spall, director of precious metals sales at Barclays.

In an interview with the Wall Street Journal, Spall Discussed his outlook for the gold market in light of the weakness it has experienced in recent months.  Highlights from the interview included:

Gold prices seem to have stabilized a bit this year after last year’s bull run. How do you see the metal performing this year?

Basically gold is an anti-government trade. People are buying gold right now because it’s an uncertainty-hedge, it’s not really about inflation or deflation. What we’re seeing more of this year is the theme that central banks and governments might be getting more in control of events…so people are more relaxed. And that’s why gold has come off a bit this year. People are hoping that’s the end of the problems.

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Do you expect central banks, which were big buyers of gold last year, to continue buying it this year?

I think it will continue. If we had this conversation back in 2000 or something , when gold was at about $250 an ounce, and tried to guess what would happen if gold went up seven times, [we would have thought] all the European central banks would be really keen to sell at that price…India and China too…but of course the reverse has happened. So I don’t see any slowing down in that sense.

One of the things people tell you is that gold is an inflation hedge. But it’s actually an uncertainty hedge, a hedge against government. In that sense, gold has far more to do with people not understanding what is going on around them and want something to protect them against it. Central banks are not immune to that sort of sensation.

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