Watch Central Banks to Figure Out Where Gold Prices Could Go Next
Watch central banks if you want to know where gold could be headed in the coming years. That’s because they could be the force that sends gold prices surging to $2,000 an ounce.
The thing is, those central banks that have gold are not selling it. And those that don’t have gold want to buy lots of it. This phenomenon is going to send gold prices soaring.
To be more specific, look at central banks in developing countries.
You see, developed economies like the U.S. and major European countries already own a lot of gold.
The table below shows the amount of gold (in tonnes) major developed countries own relative to their entire reserves. For example, the U.S. Federal Reserve holds 8,133.5 tonnes of the yellow precious metal, which makes up 74.9% of total foreign reserves. (Source: “World Official Gold Holdings,” World Gold Council, last accessed April 24, 2019.)
And these are the gold holdings of several developing countries:
|Country||Gold in Tonnes||% of Foreign Reserves|
Notice the difference?
Could Developing Countries Want More Gold?
Developing nations want to play ball with major countries. They want their currencies to be stable and their economies to be backed by something that holds value.
They have also been too reliant on the U.S. dollar over the years and are now learning that if they just hold it in their foreign reserves, there’s going to be a lot of volatility. After all, the greenback is not as stable as originally perceived. Gold provides them a hedge against the U.S. dollar.
Over the past few years, China and Russia have been buying large amounts of gold. For instance, in the first quarter of 2019, the Russian central bank purchased 56 tonnes of the precious metal. (Source: “Russia’s 2019 Gold Shopping Spree: Another 600,000 Ounces Added In March,” Kitco News, April 22, 2019.)
And now India could be dipping its toes in the gold market soon in an even bigger way. In 2018, the Reserve Bank of India purchased 42 tonnes of gold. And it’s expected to buy a similar amount this year, if not more.
What’s Next for Gold Prices?
I have said it before, and I’ll say it again: central banks shouldn’t be overlooked when it comes to the gold market. Don’t forget that these banks have immense buying power, meaning they could easily send gold prices surging over time.
As I see it, central banks are making a very bullish case for gold for the long term. I am very convinced that they are not planning to stop buying gold anytime soon. In fact, I think the number of purchases will only increase.
Obviously, banks will never say when they will buy gold and how much. But their actions are speaking louder than their words: they want more gold.
And if they keep on buying, a $2,000 gold price may not be too far away.