Central Bank Buying Means Gold to Rally to $2,000

Gold may surpass $2,000 per ounce for the first time by early next year, as central banks in emerging markets add the precious metal to reserves to diversify away from the dollar, according to Mine Life Pty. The CHART OF THE DAY shows the proportion of gold in the international reserves of India, Russia, China and Mexico is lower than the rates in the U.S., Germany and France, based on data compiled from the World Gold Council. The lower panel tracks central bank holdings in metric tons and the bullion price since March 2008. Central banks last year were net gold purchasers for the first time in two decades. “I certainly expect international central bank gold buying to continue, especially in emerging economies where foreign reserves are growing,” said Gavin Wendt, founder and senior analyst at Sydney-based Mine Life, which publishes reports on the metals industry. “It’s the safest option for them.” “Governments in many places like Asia and South America are rapidly embracing gold as a security mechanism,” said Wendt, who expects gold at $2,500 in 2013. “The value of their U.S. dollar foreign reserves has drastically fallen over the past decade.” Thailand, Bolivia and Tajikistan raised reserves in August, according to the International Monetary Fund.

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