The numbers are in and gold purchases by central banks in 2014 were the second highest in 50 years, according to the World Gold Council.
Central banks bought 477 tonnes of gold last year, second only to the 50-year record set in 2012 of 544 tonnes. This is 17 percent more than 2013’s 409 tonnes of gold purchased.
The biggest customer was the Central Bank of Russia. They bought an impressive 173 tonnes of gold, or 38 percent of all central bank purchases. Kazakhstan (48 tonnes), Iraq (48 tonnes) and Azerbaijan (10 tonnes) were among the top gold purchasers.
The National Bank of Ukraine was the only central bank to significantly reduce their reserves. Ukrainian holdings fell 44 percent to 24 tonnes. Near bankruptcy, Ukraine has had to sell some of their gold reserves to fund essential government operations.
There are at least three important takeaways from this troubling trend.
First, the biggest central bank buyers have come from the East. Western central bank gold activity has been negligible.
Second, the most probable reasons for eastern central bank gold purchases are fortifying their own currencies or, most likely, diversification of their reserves away from being too dependent on the U.S. dollar.
Third, diversification away from the world’s reserve currency of choice can be only for one of two reasons. Either they are wary of that the U.S. dollar might fall in value and do not want their reserves to be too heavily weighted in U.S. dollars, or they are strengthening eastern hemisphere currencies as an eventual counterbalance to the western hemisphere domination of international monetary policy.
Either way, it indicates a future where the U.S. dollar and the West’s dominance can no longer be taken for granted and will be under increasing competition from the rest of the world.
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