In 2011, central banks across the globe collectively bought more gold than they had previously over 40 years. The buyers were not the usual central bank suspects among the old world European nations, who over that time have been sellers rather than buyers, but emerging economies with very little of their own gold looking to diversify foreign currency receipts into something other than US dollars or euros or other bits of paper. Those bits of paper have a tendency to be devalued through increasing supply.

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 Russia, Mexico and South Korea led the central bank gold buying in 2011 through the regular channel of the Bank for International Settlements (BIS), however it is suspected the biggest buyer in 2011 was China, which is able to cream off its own world-leading production. Russia and the Philippines have also in the past acquired domestically produced gold and not appeared on the BIS radar.

Traders report that BIS has been an active buyer in the over the counter gold market as prices have tumbled in recent weeks. Spot gold has now fallen around 14% from its September high of US$1920/oz. Last week BIS bought 4-6 tonnes of gold and stepped up the buying as spot prices continued to fall. Traders believe BIS purchases over the past four weeks will prove to be more than double that amount.

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Lower gold prices are also creating a typical response in China and India, with demand for ceremonial gold jewellery firing up once more. Throughout gold's long bull run from the early noughties Chinese and Indians have been keen buyers for their respective gift-giving seasons, but sudden surges in price leave more middle class buyers out of reach. They jump back in again as soon as the gold price has a decent correction. Their tolerance level has ratcheted up each year as the gold price has risen along with Chinese and Indian wealth.

While emerging market central banks have become first time buyers in recent years, old world central banks have simply stopped selling. Since 1999 the Washington Agreement has allowed European central banks to offload a certain amount of gold holdings and for a decade central bank gold selling could be confidently expected. Not anymore. With the ECB churning out fresh euros around the clock, Europe is hanging on to what's left of its gold.