Central Banks’ Demand Could Take Gold Prices to $3,000/Ounce
The stock market is overvalued and bonds are trading at record levels. In the midst of all this, it might seem like there aren’t many good investment opportunities out there. But if you’re patient and are looking for immense gains over time, pay attention to gold. Gold prices are suppressed for now, but they might not remain low for too long.
The demand for the yellow precious metal is robust, and this could take the price of gold to a never-seen level. A gold price of $3,000 an ounce is a real possibility within a few years. By early 2022, we could even see gold prices of $2,100 an ounce.
Why am I so bullish on gold? The demand side in the gold market is resilient.
Some big buyers of gold that are worth watching are the central banks. You don’t hear much about them being involved in the gold market in the mainstream media, but they are actively involved. They buy gold because it’s a time-tested asset to reduce the volatility of their reserves.
Since the financial crisis of 2008–2009, central banks have loved gold. They’ve been net gold buyers since 2010. In the third quarter of 2021, central banks again bought a lot of gold. They accumulated 69 tonnes of the yellow precious metal for their reserves. (Source: “Gold Demand Trends Q3 2021,” World Gold Council, October 28, 2021.)
India & Brazil’s Central Banks Load Up On Gold
It’s not just the large central banks buying gold; they already held immense amounts of the metal. It’s the smaller central banks that are rushing to buy gold. Over the past few years, they have come to realize that fiat currencies are prone to volatility, and if they don’t anchor their reserves with gold, their wealth could deteriorate.
The Reserve Bank of India was the largest buyer of gold in the third quarter of 2021. The bank increased its gold holdings by 41 tonnes, bringing the total gold in its reserves to 745 tonnes. This year, India’s central bank is on pace to make its biggest gold accumulation since 2009. (Source: Ibid.)
The Central Bank of Brazil has also been stepping up. It bought nine tonnes of gold in the third quarter of 2021. Brazil’s central bank has been one of the largest gold buyers among central banks this year. Its gold holdings have jumped by more than 92% year-to-date.
Mind you, central banks have been buying gold despite the past year being very difficult for them. Central banks around the world were forced to take bold actions to get their respective economies in order as the COVID-19 pandemic brought many businesses to a halt.
So, if central banks buy gold even in the toughest economic times, what do you think they will do in good times?
Gold Price Outlook Is Bullish
Dear reader, Lombardi Letter is one of the few publications that have been bullish on gold through thick and thin over the past several years.
Central banks remaining engaged in the gold market makes my convictions even stronger. It makes me stick to my long-term gold price target of $3,000 an ounce.
Where are gold prices headed in the near term? Look at the following chart.
Chart courtesy of Stockcharts.com
Since early 2021, gold had traded below its 50-week moving average, suggesting that the intermediate-term trend was pointed downward. Recently, however, the price of the yellow metal made a move above this moving average. That says the trend has changed direction and is now pointing upward.
Pay attention to momentum indicators like the moving average convergence/divergence (MACD). For a few months, this indicator was flat, but now, it’s starting to trend higher. This says buyers could be coming in and taking gold prices much higher.
I’m keeping a close watch on the gold price level around $1,900. If gold is able to break above that level, I wouldn’t be shocked to see $2,100-an-ounce gold soon.
How to capitalize?
Generally, if you own gold bullion, you will generate returns as the price of gold rises. However, the biggest rewards usually come from owning gold mining stocks. I think if gold prices make a run for all-time highs, gold mining stocks could provide hefty returns.