More on the Central Bank Gold Rush

14 Feb
Central Bank of Russia

More on the Central Bank Gold Rush

Gold Market Discussion

Central Banks Continue the Gold Rush

The importance of the rush of the world’s central banks to buy gold cannot be over-emphasized.  After all, how could a class of gold buyers that already own 30,000 tons of gold and are intent on acquiring more not deserve our full attention?

We think that this move to gold is a megatrend in the making, but one that is being largely overlooked by others.  We want our clients and readers to be among to most informed about it.

Central bank gold buying is not just gold positive.  Because much of the money that they are using to purchase gold comes from their dollar reserves, it is dollar negative as well.  

As an example, Russian dollar reserves have fallen over the last ten years from about $180 billion to around $10 billion today.  On the other hand, its gold reserves have jumped from 40 tons in 2006 to nearly 2000 tons today.

Recently we reported on what we described as “aggressive” gold buying by China, boosting its gold position by 75 percent in 3½ years.

Like Russia and China, many central banks having been adding to their gold reserves right along, but it is notable that the central banks of countries that have been absent from the gold market for years are buying again.  That includes India, Thailand, the Philippines, Egypt, and Poland.  

Here is a brief description of the trajectory of central bank gold buying as reported by the World Gold Council:  

“Central bank gold reserves are rising. Net purchases totaled 351.5 tons in the first 10 months of 2018, up 17 percent year-on-year and the strongest showing since 2015. Momentum is growing too, with net purchases of 148.4 tons in the third quarter alone, up a full 22 percent year-on-year.”

Little noted in the popular press, foreign gold buying foreshadows changes in the US dollars’ status.  The dollar and its risks are the unstated focus of their analysis when foreign central bankers explain their new gold rush.

A Russian central bank official says gold is a “100 percent guarantee from legal and political risks.”  Hungary, which has increased its gold holdings by ten times in recent years, describes gold “as a major line of defense under extreme market conditions or in times of structural changes in the international financial system or deep geopolitical crises.”

We couldn’t have said it better ourselves.