By Michael Lombardi
Skepticism toward gold bullion prices is increasing. The bears and the mainstream media are focused on the price decline of gold bullion and are clearly not looking at the demand of the metal. The reality: demand for gold bullion is increasing.

As gold bullion prices have declined a little since the beginning of 2013, purchases of gold by central banks have increased. In January, central banks from countries like Russia, Turkey, and Kazakhstan continued to buy more gold bullion.

According to the International Monetary Fund (IMF), the Russian central bank increased its gold bullion holdings by 12.2 metric tons in January to 970 tons. During 2012, the Russian central bank increased its holdings by 8.5%. If Russia keeps its gold-buying pace throughout 2013 at the same level as January, it will increase its holdings of gold bullion by 15% during the year.

Similarly, the central bank of Kazakhstan increased its gold bullion holdings by 1.5 tons in January, bringing its total holdings to 116.8 tons. Over 2012, Kazakhstan’s central bank increased its holdings of gold bullion by 41%.

Turkey’s central bank increased its gold bullion holdings by 84% in 2012. In January, the bank bought another 10.3 tons of the precious metal.

Keep in mind that these are not the only central banks buying gold bullion. As the list of central banks printing more money has increased, the number of gold bullion purchasers has grown.

Demand for gold bullion in India, which is the world’s biggest buyer, remains high. As the World Gold Council cites, gold bullion imports in India increased 62% in the fourth quarter of 2012 to 255 tonnes. About 80% of India’s current account deficit (exports minus imports) is due to imports of gold bullion. To curb the demand, there are fears that the government of India might increase its import taxes on the gold bullion for the second time this year.

With all this demand for gold still present, what still holds true is that the supply for gold bullion hasn’t increased, while central banks around the world and consumers alike are running to buy the precious metal.

According to National Bank Financial, gold production is going to fall off a cliff in 2017. The main reasons: there hasn’t been any major discovery of the precious metal, and miners are delaying or cancelling projects due to increasing costs.

Gold bullion, as I have repeatedly said in these pages, looks to be in a shiny spot. The current correction in gold prices we are experiencing is very normal in any long-term bull market. I continue to be bullish on gold bullion, because I still see increased demand by central banks and declining long-term supply. Until this imbalance of demand to supply changes, I expect gold bullion prices to outperform.
Courtesy: ETF Daily News