These Gold Buyers Are Making a Bullish Case for Gold
A few big buyers are stepping up in the gold market. This shouldn’t be ignored. These buyers are making a very strong case for higher gold prices.
There are two large buyers that are worth paying extra attention to. They are ramping up their purchases and they could buy a lot more in the coming months, quarters, and years.
Central Banks on Pace to Buy More Gold Than in 2018
The first buyer worth looking at is the central banks. With their actions, it is very clear that central banks don’t really care where gold prices are. They just want more gold.
Why are they buying gold? Because the yellow precious metal reduces volatility in their foreign exchange reserves.
In the 1970s, central banks around the world bought into the idea that the U.S. dollar is safe, and the only asset worth holding. During the last financial crisis, however, they figured out that the U.S. dollar doesn’t really provide much safety.
In the third quarter of 2019, central banks purchased 156 tonnes of gold for their reserves. Year-to-date in 2019, central banks have purchased 547.5 tonnes of gold. This is 12% higher than in the same period of 2018. (Source: “Gold Demand Trends Q3 2019,” World Gold Council, November 5, 2019.)
How significant is this? According to the U.S. Geological Survey, global mine production in 2018 was 3,260 tonnes. (Source: “Gold,” U.S. Geological Survey, last accessed November 12, 2019.)
So, in the first three quarters of 2019, central banks purchased nearly 17% of the total global gold mine production.
Note that, in 2018, central banks purchased the most gold in over 50 years. This year, they are already on pace to break the 2018 record.
Central banks have been net buyers of gold since 2010, and their purchases have been increasing each year.
The other buyer worth looking at: gold-backed exchange-traded funds (ETFs).
In 2013, when gold prices started to drop, holdings at gold-backed ETFs dropped. It wouldn’t be wrong to say that these ETFs acted as if they were throwing more gas on the fire. They made the sell-off in gold worse.
Now we are seeing these ETFs’ gold holdings increase.
In the third quarter of 2019, gold-backed ETFs’ holdings grew by 258.2 tonnes. All together, gold holdings at these ETFs hit a record high in the quarter, 2,855 tonnes, which was above the previous peak of 2,841 tonnes set in late 2012. (Source: World Gold Council, op. cit.)
Why are gold-backed ETFs worth watching, and could they buy more gold? One of the easiest ways for institutional investors to own gold is through these ETFs.
Over the past few quarters, big banks have been very optimistic about gold. And when the big banks are bullish, institutional investors tend to listen to them and buy. So, keeping all this in mind, it’s possible that gold ETFs will buy even more gold.
If You Ignore Gold Now, You May Regret It Later
Dear reader, I can’t stress this enough: ignore the noise and pay attention to the fundamentals.
There are major buyers present in the gold market at the moment. They are buying non-stop and their purchases have been increasing.
This is very bullish for gold prices; if you are not looking at gold, you could be making a big mistake.