Gold Prices to Soar on Back of Heavy Central Bank Intervention
Central Banks Are Quietly Buying More Gold
If you are looking for the “next big trade,” it would be wise to pay attention to gold prices, since the precious metal continues to sell at a ridiculously low valuation.
You see, there’s one group of buyers that really wants gold, regardless of the costs. Of course, I am talking about central banks.
Think of the big central banks as an elephant trying to get into a small swimming pool. If it jumps right in, there will be a big splash. If the central banks announce that they are going to be buying gold, speculators will front-run them and send gold prices soaring in no time.
So they have to enter slowly. But you need to understand, no matter how the elephant enters the pool, the water will be displaced.
Take China as an example. The Chinese central bank has been active in the gold market. Between June 2015 and October 2016, it reportedly added 788.5 tonnes of gold to its reserves. (Source: “Changes in World Official Gold Reserves,” World Gold Council, July 6, 2017.)
However, these numbers can’t be taken at face value. It is widely believed that the numbers are actually much different. According to one recent analysis, the People’s Bank of China holds 4,000 tonnes of gold, rather than the 1,840 officially reported. And the central bank is continuously buying more gold. (Source: “Estimated Chinese Gold Reserves Surpass 20,000t,” BullionStar, July 29, 2017.)
China is just one piece of the puzzle.
As it stands, we are seeing a gold rush among smaller central banks. The banks that didn’t have much gold in the first place are rushing to buy it.
Consider the central bank of Kazakhstan. Between December 2011 and June 2017, this country’s central bank bought gold every single month except one.
Russia has been a solid gold buyer as well. Since January 2008, the Russian central bank has purchased 1,265.5 tonnes of the yellow metal. And it doesn’t look like it’s going to stop buying anytime soon, as it remains one of the most active gold-buying central banks.
Argentina, Bangladesh, Belarus, Bolivia, Brazil, Iraq, Jordan, Korea, Mauritius, the Philippines, Qatar, Saudi Arabia, Serbia, Sri Lanka, Tajikistan, Thailand, and Turkey have all been net buyers of gold since 2008.
Looking at what the central banks are doing—continuing to stockpile gold, taking it off the market—I continue to see $2,500-an-ounce gold as an easy target.