Central banks bought the most gold since 1964 last year just before the collapse in prices into a bear market underscored investors’ weakening faith in the world’s traditional store of value.

Nations from Colombia to Greece to South Africa bought gold as prices rose for an 11th year in 2011, highlighting the reversal of a three-decade-long bout of selling that diminished the world’s biggest bullion hoard by 19 percent. The World Gold Council says they added 534.6 metric tons to reserves in 2012, the most in almost a half century, and expects purchases of 450 to 550 tons this year, valued now at as much as $25.3 billion.

Central banks are the biggest losers, with about $560 billion of value erased since gold reached a record $1,921.15 an ounce in September 2011. The metal was already in the eighth year of its longest bull market since the end of World War I when reserves started expanding again in 2008. They were also buying in 1980 when bullion peaked at the equivalent of $2,400 in today’s money, and selling in 1999 as prices slumped to a 20- year low.

“They sell at the wrong time and buy at the wrong time,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “They aren’t traders. They are looking at it as a long-term holding, as an ultimate reserve currency. With the benefit of hindsight, they tend to get it wrong more often than not.”

Annual Decline

Gold tumbled 15 percent to $1,431.95 this year and entered a bear market on April 12. By the end of the next trading day, prices had slumped 14 percent, the biggest two-day rout in three decades. Should the metal fail to rally by the end of the year, it would mark the first annual decline since 2000. Goldman Sachs Group Inc. is forecasting $1,390 in 12 months.

The timing of the rout is surprising because the events that sustained the bull market in the last several years are still unresolved. Central banks are printing money on an unprecedented scale as they seek to boost growth, Europe’s debt crisis is spreading and the International Monetary Fund is among those getting more pessimistic on the global economic outlook. Yet investors are now shunning an asset traditionally seen as a hedge against currency devaluation and fiscal turmoil.

Central banks owned 31,671 tons at the end of 2012, about 19 percent of all the metal ever mined, the London-based World Gold Council estimates. They accumulated the hoard over decades, with about 16 percent added in the 10 years through 1965, when prices were fixed at $35, or about $258 today once adjusted for U.S. inflation. President Richard Nixon formally ended the convertibility of dollars to gold in 1971.

Sales Limits

Holdings peaked at 38,347 tons in 1965 and began their most recent contraction about a decade later. Nations from Canada to the U.K. to Belgium sold more than 2,000 tons in the 1990s, contributing to the 28 percent slump in prices and spurring an agreement between 15 central banks in 1999 to set annual sales limits. Disposals under the accord dwindled to less than 6 tons last year, compared with 400 tons when it started, and were eclipsed by the purchases of other central banks.