Central Banks May Ramp Up Gold Buying / Commodities / Gold and Silver 2021
Ignore what centralbankers are saying; instead, watch what they are doing.
While they poo-poo goldor pretend it doesn't exist, global central banks have been quietly but aggressivelyaccumulating gold bullion for several years now. The Central Bank of Russia,for example, has been a consistent buyer of gold.
Other major central bankshave also been acquiring and holding the metal, although some scaled back lastyear following the pandemic and record-high prices for the metal.
Given more favorablemarket conditions and greater risks to holding U.S. dollar reserves, centralbanks may soon ramp up their gold buying again.
The Hungarian CentralBank cited “long-term national and economic policy strategy objectives” for itsmove.
The central bank alsomentioned new risks that have developed as a result of the ongoing Covid-19pandemic that has shaken the world.
The bank described goldas one of the most crucial reserve assets worldwide.
Central bank gold buyingover the last decade helped support the price of gold. The sharp trend higherin central bank purchases did, however, come to a pause last year as recordprices and the economic consequences of the global pandemic response took hold.
Central bank acquisitionsgot off to a slow start in 2021. But as the buying trend is resuming, thesefinancial behemoths will likely become net buyers for the year.
With global central banksnot only buying but also holding so much physical gold bullion, it naturallybegs the question of why.
There are several reasonsthat these powerful financial institutions look to add gold to their reserves.These include diversification, stability, and potential price appreciation.
Diversification
It is no secret that goldcan add portfolio diversity.
The yellow metal tends tohave a negative correlation to stocks, and often moves inversely to the FederalReserve Note “dollar” index as well. This means that as the value of equityportfolios declines or as dollar-denominated holdings lose value, the priceof gold may rise, all or partially offsetting those losses.
Stability
The great J.P. Morganonce stated “Gold is money, everything else is credit.”
In our view, nothingcould be more true.
As a reliable store ofwealth and value for thousands of years, physical gold has a reputation as aprotector of wealth and value.
Unlike fiat, or papercurrencies, gold cannot be created out of thin air on a whim. It cannot bemanipulated or otherwise messed with to facilitate desired outcomes. The goldmarket is driven simply by the laws of supply and demand.
The Dutch Central Bankput it well, noting, “A bar of gold always keeps its value. Crisis or not. Thatgives a safe feeling. The gold holdings of a central bank are therefore abeacon of confidence.”
Price Appreciation
The gold market has comea long way in recent years and may just be getting started on a multiyear bullrun higher.
The yellow metal has,since the early 2000s, more than quadrupled in value as measured in FederalReserve Notes.
Kicking off the 21stCentury at around $400 per ounce, the yellow metal has made fresh all-timehighs last summer at nearly $2100 per ounce and still trades near or above itsall-time highs in virtually all world currencies.
Given the free-wheelingprinting press policies of every central bank, there simply is no barrier tosharply higher gold prices.
If the dollar continuesto weaken, pushing inflation higher, the price of gold could easily double ormore from recent levels – putting $5000 per ounce on the table.
There are obviously manymore reasons to own physical gold. The three outlined here are some of thebiggest, however, and are primary drivers of central bank buying.
If the biggest, mostpowerful financial institutions in the world see the value opportunitypresented by gold ownership, shouldn’t you?
Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2021 Stefan Gleason - All Rights Reserved
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