A recent upsurge in gold buying by central banks around the globe is the polar opposite of what they've stated their goal was—so what's going on? So asks John Browne of Euro Pacific Capital.

Gold appears to be headed to an impressive price appreciation for the second half of 2012. Since the beginning of July, gold is up almost 10%.

What is noteworthy here is that in recent months, fears of a worldwide recession have increased markedly. It used to be considered axiomatic that recession created adverse conditions for commodities (a reality that has helped push down the price of crude oil thus far in 2012). How then can we understand the movement in gold?

Reports have recently been released that throw particular light on the degree to which central banks around the world are accumulating gold. These activities must be playing a significant role in keeping the heat turned up when it may be otherwise cooling down.

Given the extraordinary degree of insight that central bankers are expected to have, what do they see that drives them to buy gold when classically the metal should be falling in times of recession?

As we have said many times, there are two fundamental investment reasons to buy gold. The first is as a hedge against the loss of purchasing power of fiat currency, caused either by inflation or currency debasement. The second is as insurance against political and financial uncertainty or collapse. Central bankers are not giving either scenario much lip service.

By the latest analysis, it appears that the European Union is headed toward depression. After 12 years of stagnation, the Japanese economy remains flat at best. With an Obama victory at the polls, Obamacare, and massive tax increases threatened, the US economy looks set increasingly for recession.

If recession hits the world's two largest economies, the EU and US, the international economy—including that of China and its prime raw material suppliers such as Australia, Brazil, and Canada—can't be expected to grow robustly. Runaway inflation, according to the models to which most central bankers subscribe, would then be considered a distant risk.

Is it possible that these individuals, at the apex of the economic and financial worlds, don't trust their own policy papers? Perhaps they understand the net effect of massive quantitative easing and the distortions being made by the ultra-low interest rates that have been held far too low for far too long.

Tickers Mentioned: GLD