Morningstar Advisor - April/May 2012 - (Page 64)

Gray Matters Central Banks Driving the Gold Rush By Joung Park The key to understanding the gold market is understanding the role central banks play in prices. Central bank purchases, particularly from the official sector in emerging economies, have been the largest single driver of higher gold prices during the past five years. This development is particularly notable because central banks have historically been net sellers of bullion since the 1980s. Central banks from emerging economies have been buying gold to diversify their foreign exchange reserves, while developed Western countries with large legacy bullion holdings now see gold as a strategic reserve asset and have accordingly halted their gold sales programs. Gold holds particular appeal for countries with large U.S. dollar holdings such as China and OPEC member nations, given gold’s historically negative correlation versus the greenback. However, central bank buying cannot maintain its current pace over the long haul, which supports Morningstar’s lower long-term gold price forecast of $1,200 per ounce. That being said, there are a number of potential scenarios regarding official sector gold demand over the next several years, some of which include accelerated central bank purchases, that could be very bullish for gold prices in the near to intermediate term. Before 2010, central banks around the world were major suppliers of gold on a net basis, 64 Morningstar Advisor April/May 2012

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2012

Morningstar Advisor - April/May 2012
Letter From the Editor
We’re Too Smart
How Do You Use Alternatives?
Taking the Lead
How to Find Economic Moats
The Beauty of Currencies
No Clarity on Bonds
Four Picks for the Present
Investment Briefs
Performance Chasing, Evaluated
Technology’s Slim Pickings
How Much Is Enough?
The Fear Bubble
Three Traits of a Successful Long-Short Equity Manager
Why Absolute-Return Funds Fail to Deliver
An Economist’s Response to Crises
Undiscovered in Plain Sight
Untangling ETF Tax- Efficiency Myths
Central Banks Driving the Gold Rush
U.S. Industrials Could Add Some Magic to Europe-Weary Portfolios
No-Hesitation Allocation Funds
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Greatest Story Ever Told

Morningstar Advisor - April/May 2012