Central banks around the world have started buying gold and this tells the world they believe it has value and it is an important asset to back up their currencies and their economies, Michael Haynes, CEO American Precious Metals Exchange, told CNBC.
AP
Gold Bars
The World Gold Council expects central banks to be net buyers of gold in 2011 and 2012.
“It’s also important when we look at the physical holdings of gold and gold coins and bars, this is, what individuals buy, for example the kilo bar of gold," Haynes explained.
"When we look across the last couple of years - 2009 and 2010 - you can see that in the US we’ve purchased a certain amount of this but in Asia you can see consistent purchasers in this but it’s been increasing in these other countries,” he said.
Certain countries prize gold for its "safe haven" status but also as an important cultural symbol. In India gold is prized as a status symbol during religious and wedding ceremonies.
“The IMF held a gold sale at the end of 2010 early 2011 and the Central Bank of India bought 400 tonnes of gold to back up their currency because they apparently felt the basket they had supporting their currency was insufficient.
There is a list of countries who bought at that gold sale,” Haynes said.
Gold prices have remained stable following the uncertainty involving the euro zone debt crisis and uncertainty in key global economies including the US and China.
Spot Gold hit a record high on May 2 at $1,575.79 an ounce.
Despite gold’s bull-run of late, gold mining companies have not fared so well and this has surprised some analysts.
“You would have made three times as much money by owning gold than in gold mining shares, which is surprising ," Charlie Morris, head of absolute returns at HSBC Global Asset Management, said.
"The fact that there is a lack of supply in the market is one of the reasons the market is so tight.” “Switching gold into gold shares means an increase in risk but they do present an opportunity when they become outrageously cheap, which they are today,” he added.