Federal Reserve Chairman Ben Bernanke believes that no one truly understands the evolution of the gold prices, a trend that made central banks around the world to lose $545 billion after the devaluation of their reserves since the record level reached in 2011.
“Nobody really understands gold prices and I don’t pretend to really understand them either,” Bernanke said during a July hearing at the Senate Banking Committee. Bernanke is a graduate of Harvard College and the Massachusetts Institute of Technology and led the Federal Reserve during the recent financial crisis that started in 2008.
Central banks, which hold 18% of the total amount of gold in the world, this year will buy up to 350 tons, worth about $15 billion, according to estimates of World Gold Council, based in London. In 2012, central banks bought 535 tons of gold, the most since 1964. Russia is the largest buyer, as its reserves climbed by 20% since the price of gold reached a record $1,921.15 an ounce in September 2011. Since then, the price of gold fell by 31%.
While central banks buy gold, investors have lost confidence in the precious metal as a value storage. This year, the financial products backed by gold fell by 43%, or $60.4 billion, causing big losses to fund manager John Paulson.
Billionaire George Soros has sold this year his holdings of gold-backed financial products traded on exchanges (ETP) and mining companies have written down the value of their assets by at least $26 billion.
The gold price fell by 21% this year, being traded Monday at about $1,318.29 an ounce on the London Stock Exchange, and heading for the biggest decline since 1981.
Central bank officials responsible for protecting the economies from inflation, often had uninspiring plans to investing in gold, buying high and selling low. They have reduced their holdings when the price of gold reached a minimum of the last 20 years in 1999, and the next nine years the price has quadrupled. The central banks became net buyers of gold just before the price reached a peak in 2011.
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