Purchases of gold bullion by the central banks of the world will rise from 142 tons last year to 450 tons in 2011, predicts the World Gold Council. However, gold industry experts are still expecting a pull-back in gold prices as global equity markets fall sharply over the next two months as the eurozone crisis comes to a head.

IMF data shows that the central banks of the world added a net 142 tons of bullion to their reserves last year. The tripling of purchases this year has added to the upward pressure on the gold price helping to make gold the second best performing commodity after gasoil.

Price rises

---

Bullion is up 19 per cent at the time of writing, despite a fall back to around $1,680 from a peak of $1,923 an ounce. Holdings by exchange traded funds in gold rose by 79.5 tons in November alone, the best monthly inflow since July. The combined holdings of the so-called paper-gold ETFs is now higher than all but four of the world�s central banks.

Bloomberg also highlighted the bullish position in the futures market where the price is set. That said the price of gold fell by 3.5 per cent last week as the S&P lost 4.7 per cent in its worst Thanksgiving Week since 1932. There is a high correlation between movements in all major asset prices at the moment. Basically falls in stocks trigger margin calls and that means that investors also have to dump other assets like gold too.

Equity markets

---

Therefore if global equity markets continue to weaken over the next couple of months � and there is nothing on the horizon at the moment to suggest a reversal is coming � then gold and silver will also decline in value.

How low they will go and when the bounce back will occur is very hard to predict and ArabianMoney is not in favor of day trading anyhow. It is a surefire way to lose your money very quickly in volatile markets. But we note that ultimately the eurozone will have to print money and that both the US and UK will follow with their QE programs. In that environment it will not only be the global central banks who want their money in gold and the price will go up