Iraq more than doubles gold reserves with a $1.56 billion buy - Wealth Managers

Central bank purchases 36 tonnes to stabilize its dinar currency

Large-scale gold purchases by central banks have gone a long way toward supporting gold’s bull market, and bombshell news from Iraq is signaling that this trend is ongoing.

“Iraq bought 36 metric tons of gold this month valued at about $1.56 billion in the largest purchase by a nation in three years,” Bloomberg reported Tuesday. The purchase by its central bank more than doubles the nation’s bullion reserves, which stood at 29.8 tonnes in August, and stands as the largest acquisition since Mexico’s 78.5-tonne buy in 2011.

Why do central banks hold gold? “Tradition,” former Federal Reserve chief Ben Bernanke infamously told then-Rep. Ron Paul during 2011 congressional testimony. But it’s more than that. The Iraqi bank said it was diversifying into gold to stabilize its dinar currency.

Gold’s also been useful as a crisis hedge. “Central banks had been net sellers of gold until the financial crisis that followed the collapse of Lehman Brothers, which boosted bullion’s appeal as a reserve asset and hedge against currency market volatility,” Reuters noted.

Central-bank gold purchases peaked at 544 tonnes in 2012, but the World Gold Council thinks countries will continue buying amounts in the “hundreds” of tonnes. It might only take another crisis to goad central banks back into buying at record levels.

In the meantime, even if they’re not buying new gold, neither are they selling what they’ve already acquired. Iraq has no plans to sell metal, said the director general of investments at its central bank in January.

The Wall Street Journal confirmed the trend in a recent article, reporting that “over the past five years central bank gold sales have decreased significantly. Instead, central banks around the globe have increased their holdings in the aftermath of the financial crisis.”

“We’re not selling any gold,” Deutsche Bundesbank board member Carl-Ludwig Thiele told the paper.

Given the geopolitical and economic uncertainties that remain in the world, investors should do likewise and maintain a position in gold, and if they lack one, consider establishing a foothold in the yellow metal by dollar-cost-averaging or buying the dips. Be your own private central bank.

More information can be found online at http://www.goldbullionadvisors.com