Central Banks Could Send Gold Prices Surging
If you are not watching the central banks, you could be making a big mistake. Central banks could be the catalyst that sends the price of gold surging.
You see, after the 1970s, central banks bought into the idea that the U.S. dollar was the savior of the global financial system. They rushed to buy the greenback like there was no tomorrow.
After the financial crisis of 2008–2009, it became very clear to central banks that the U.S. dollar isn’t as secure as they were told it would be.
During that time, the central banks’ reserves became very volatile, and that’s the last thing they want to see. They are their respective nations’ bankers and protectors of wealth. Volatile reserves mean a volatile currency and wealth destruction.
So central banks started to look for an alternative in order to reduce the volatility of their reserves. They understood very clearly that gold was the best choice.
Since 2010, central banks have been net buyers of gold. In 2018, they bought the most gold they have in 50 years. In 2019, they have also been on a very high note. It wouldn’t be surprising if their gold buying this year surpasses their 2018 numbers.
Who Needs More Gold?
The big question: which central banks are buying gold?
Here’s the thing: back in the 1970s, when the U.S. dollar was in favor, the major central banks never really sold their gold. They kept a lot of it and continue to hold it.
It was the small central banks that rushed to buy the U.S. dollar. Now it’s those same central banks looking to accumulate gold. They will need a lot of gold to diversify their reserves.
Two of the central banks that shouldn’t be ignored are China and Russia. They need a lot of gold.
China has been stepping into the gold market at an astonishing pace. Between December 2018 and September 2019, China’s central bank purchased 100 tons of the yellow metal. (Source: “China’s Gold-Buying Spree Tops 100 Tons During Trade War,” Bloomberg, October 6, 2019.)
The Chinese central bank went quiet for some time after 2009, but since 2015, it has been active. Also, its actions have been very loud and clear: it doesn’t care about where gold prices are; it just wants more gold.
Russia has been very active in the gold market as well. Its gold stash currently amounts to close to $110.0 billion. (Source: “Russia’s Massive Gold Stash Is Now Worth More Than $100Bln,” The Moscow Times, September 9, 2019.)
The country has been one of the most consistent gold buyers for a while. The Russian central bank has been increasing its gold holdings each month for several years.
Great News for Gold Bulls
Dear reader, you won’t find much in the mainstream media about central banks buying gold. Why? Because it’s not “hot.” I think this is one of the most ignored stories out there.
Mark my words, central banks are buying record amounts of gold. They will not stop anytime soon, and they could send the price of gold surging.
You have to understand, central banks are a major and growing source of demand in the gold market at a time when the supply side is struggling. This is a perfect recipe for higher gold prices.
Over the past few years—in fact, since 2015—the price of gold has increased a lot. As central banks remain in the gold market, gold prices could jump further. Patience is required, and long-term investors could be rewarded very well by the yellow precious metal.