Gold Purchases in 2012 Most Since 1964According to the International Monetary Fund (IMF), in February, the central bank of Mongolia increased its gold bullion reserves to its highest level since August of 2008. The country has been purchasing gold bullion for three consecutive months—its reserves have increased from 1.5 metric tons to 5.8 tons, or about 287%. (Source: Bloomberg, March 26, 2013.)

Similarly, the central bank of Russia has been purchasing gold bullion. It bought seven tons of the yellow metal in February to bring its total gold bullion holdings to 796.9 tons.

Turkey, the country which has started to use gold bullion as collateral, increased its reserves by 5.7 tons in February, bringing its total holdings to 375.7 tons.

According to the World Gold Council, central banks around the world purchased 534.6 tons of gold bullion in 2012, which was the highest amount since 1964.

How long can this buying spree by central banks continue in the gold bullion market? Consider China, for example. The country’s central bank holds only 1.7% of its reserves in gold bullion. (Source: “World Official Gold Holdings,” World Gold Council, March 2013.) And China has the biggest reserve in the world—worth more than $3.0 trillion.

But compared to the gold bullion holdings of other major central banks, China is still far behind. The U.S., Germany, and Italy hold more than 70% of their reserves in gold bullion. Imagine what would happen to gold bullion prices if China even just tried to double its gold reserves.

In the backdrop of the gold bullion buying spree, central banks around the world are printing paper money, working to depreciate their currencies to jumpstart exports.

Thanks to the Federal Reserve, central banks around the world are losing trust in the U.S. dollar; which used to be the “safe haven” currency. As more countries print paper money, known as “fiat currency,” the same countries will be reluctant to hold the fiat currencies of other countries in their reserves.

Gold bullion is becoming a need for central banks, and I believe central banks will buy more gold bullion, because they have to, as paper money becomes too plentiful. While central banks are buying gold bullion at a rate not seen in 49 years, the price of gold bullion has declined—actions that bring forward the question of price manipulation in the gold market. If gold prices are indeed being suppressed, which is very difficult to prove, the end result will eventually be a major breakout for gold bullion prices on the upside.

I am as bullish as ever on gold bullion and see the current depressed prices of quality junior and senior gold-producing companies as a great opportunity for investors.

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Michael’s Personal Notes:

The so-called “recovery” in the jobs market isn’t sustainable. I don’t disagree that there has been job creation in the past few months, but when I look at the spectrum of the jobs created in the U.S. economy, I become skeptical. Jobs growth in the U.S. economy has been in the low-paying retail sector.

Consider this: in February, there were 1,422 mass layoffs in the U.S. economy, involving 135,468 workers. Looking closely at the layoffs, 295 of them occurred in the manufacturing sector, sending 39,407 individuals back to look for jobs and seek unemployment insurance benefits. (Source: Bureau of Labor Statistics, March 22, 2013.)

There are more than five million Americans working part-time, not because they want to, but because they can’t find a full-time job. (Source: Federal Reserve Bank of St. Louis web site, last accessed March 26, 2013.)

What’s ahead for the U.S. jobs market? As curt as it sounds, more misery is in store for the U.S. jobs market. Hewlett-Packard Company (NYSE/HPQ) says it will cut 15,000 more jobs—part of a three-year layoff plan that will decrease its workforce by 29,000. (Source: Business Insider, February 27, 2013.) And Hewlett-Packard (HP) is not the only company that’s downsizing and sending its employees back to the jobs market; some of the other major companies are doing the same.

Why is corporate America laying off workers? The answer is simple: its corporate earnings are suffering, and the only way companies can drastically make a difference when revenue is soft is to cut expenses; this will lead to more pressure on the U.S. jobs market. In the first quarter of this year, corporate earnings growth is expected to contract.

At present, we have 12 million individuals looking for work in the U.S. jobs market with a significant portion of those people unemployed for longer than six months.

Where the Market Stands; Where It’s Headed:

Trading has become choppy, with the Dow Jones Industrial Average up one day and down the next. This type of trading, after a long period of rising stock prices, is often indicative of a turn in market direction. I continue my bearish stance on stocks. The market is severely overbought and overvalued.

What He Said:

“Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis.” Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then-Federal Reserve Governor Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.