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Gold: Will the Last Seller Turn Out the Lights?

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According to bullion dealer BullionVault, Eurozone central banks are net buyers of gold so far in 2011, for the first time since the introduction of the euro in 1999. The amount is insignificant -- 6 million euros, all of it in coin -- but look at the big picture. A bloc of countries that represents more than one-third of all official gold reserves has joined a broader trend that's strongly bullish for the yellow metal.

Even Greece isn't selling (much)
BullionVault's observation debunks any rumor that Eurozone countries are selling gold to raise funds in the context of the sovereign debt crisis. Data from the World Gold Council shows that even Greece hasn't sold an ounce of gold since January, when it sold a tenth of a tonne. That's worth roughly $5 million at current prices -- not even enough to finance the retirements of a busload of Greek civil servants.

In that respect, the Eurozone has fallen into step with the trend for the entire official sector -- namely, central banks and the International Monetary Fund -- which became a net buyer of gold in 2009 for the first time in two decades. That reversal was driven by the central banks of emerging economies such as China, India, and Russia, which are becoming increasingly important players in the gold market.

Where are the sellers?
Up through May of this year, only emerging nations have added to their official holdings. In fact, only Greece sold a net amount of gold. Mexico made the largest addition, at 99 tonnes -- roughly 3.2 million ounces valued at $4.9 billion, based on Wednesday's closing price.

The official sector is a critical participant in the world gold market. Within it, Eurozone central banks have joined China, Russia, and other emerging economies in contributing to world gold demand, driving gold prices even higher.

The trend is your friend, until you miss the reversal
If you're long gold through the SPDR Gold Shares (NYSE: GLD  ) , the Central Fund of Canada (AMEX: CEF  ) , or the Sprott Physical Gold Trust ETV (NYSE: PHYS  ) , you're riding a strong upward trend. However, you'd better hope you get off before the trend reverses and the wheels fall off this market. Don't get caught flat-footed like Britain's Gordon Brown, who announced that the U.K. would sell half of its gold reserves in 1999 -- near the bottom of a 20-year bear market.

With gold prices at historic highs, one little-known company is making a fortune. Find out which tiny gold stock is digging up massive profits.

Fool contributor Alex Dumortier holds no position in any company mentioned. Click here to see his holdings and a short bio. You can follow him on Twitter. The Motley Fool owns shares of Sprott Physical Gold Trust ETV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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