Central Banks Still Buying Gold!

20 May

Central Banks Still Buying Gold!

The world’s central banks continued their diversification into gold with new acquisitions in the first quarter of 2020 (January – March).  The World Gold Council reports net new central bank gold purchases of 145 metric tons in the period.

We feature news about central bank gold buying because we believe it represents one of the most important global megatrends of our time.  Its primary impact is threefold:

  • Central bank gold purchases are a harbinger of growing “de-dollarization,” the waning role for the dollar as the world’s reserve currency.  As such they also signal a long-term decay in the dollar’s purchasing power.
  • The addition of gold to central bank reserves makes those nations less susceptible to US  foreign policy hegemony.  It is no secret that the rest of the world, including long-time US allies, are bristling at what they see as the heavy hand of US trade restrictions and sanctions that directly impact their economies.
  • The sheer quantity of central bank buying power has an unmistakable impact on gold’s trajectory.  Furthermore, gold in central bank reserves is gold in strong hands and is less likely to be sold. 

Although central bank purchases in the first quarter were nine percent above the five-year quarterly purchase average, they were eight percent lower than during the same quarter in 2019.

Russia announced that it suspended its gold buying program as of April 1.  The Central Bank of Russia has been the largest of the national gold buyers since 2005.  The World Gold Council says that “the bank gave no reason for the move.” However, petroleum and natural gas are Russia’s leading “cash crops,” so sharply lower energy prices this year have unquestionably impacted the country’s foreign currency earnings.

The Gold Council reported earlier that global investment demand for gold (bullion, coins, ETFs) in the first quarter of 2020 was 80 percent higher than the same quarter in 2019

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