Central Banks Add To Gold Reserves

Posted: Sep 26, 2012 12:01 AM

Gold was up in spite of continued strength in the dollar against overseas currencies. 

In early trading gold was higher by $1.19 to $1,765.20 and silver was up $0.13 to $34.12, for a silver/gold ratio of 51.7. 

The strength in gold prices can be traced to institutional buyers as central banks continue to accumulate gold as part of their reserves.  Investors have also turned to exchange traded products backed by gold bullion as ETFs have increased their gold holdings to a record 74 million ounces. 

This strength in gold prices into the headwinds of a stronger dollar and central bank accumulation are signs that this gold run is set to continue.  We may well be looking at long-term pricing above $1,700. 

Yesterday I mentioned we’d talk more about why gold bars turning up with tungsten cores was an anomaly and not the rule.  The gold industry is one of the few left that still has roots in reputation and trust.  Since melting and recasting gold bars is inconvenient, it’s so much easier when you can trust the company you’re buying from to deliver a quality product.  Over the years companies like J&M, Pamp Suisse, the Perth Mint and others have built up a reputation of delivering quality products.

Cutting open a gold bar, hollowing out part of the inside, replacing it with tungsten and then resealing the bar in such a way that it would pass a physical inspection is fantastically difficult.  You can’t perform that kind of detail work in a garage and it takes access to a lot of gold to make it worthwhile. 

While gold may sit in your safe for a long time, in gold markets it does circulate quite a lot.  Tainted bars would eventually end up being melted down by a jeweler or other refiner.  Even the bars that central banks keep have to be melted down recast at some point.  Coring bars on a scale that would make it profitable means one of those bars would end up at a refinery or jeweler fairly quickly and the fraud would be found out. 

There are also ways to test for tampering that don’t depend on the bar being melted down.  The bottom line is if you’re buying retail quantities from well known names in the industry, you don’t have worry you may be getting gold plated tungsten. 

Chris Poindexter, Senior Writer, National Gold Group, Inc