If investors always try to “follow the Smart Money,” like hedge funds and renowned, sophisticated investors, then one question comes to mind:
Who, or what, does the Smart Money follow?
The answer is the “Smartest Money” — central banks.
Every day, we read about how anxious investors are looking at our Fed and central banks worldwide for financial cues.
Well, here’s the surprise:
Right now, central banks are buying more gold — at a faster rate — than they have in 55 years. This sudden rush into gold could mean they see a massive buying opportunity. Or they may be stockpiling gold for a coming economic event.
Either way, central banks have bought 399 tons of gold in 2022 so far — that’s more than any time in history. And understanding why they’re buying so much gold may offer strategic insights for the rest of us. Especially as we continue to fight inflation and prepare for a possible recession.
Why are central banks buying so much gold so fast?
According to the World Gold Council’s annual survey of central banks, here are their primary concerns:
Concern #1: Global inflation
The US inflation rate is a troubling 7.7%. Germany, Italy, and the UK are all fighting 10% inflation. And the flames of inflation in Turkey and Argentina have climbed to a scorching 80%!
Concern #2: Geopolitical instability
The Russian invasion of Ukraine is a major concern. As is the uncertainty about the best path for the post-pandemic economic recovery.
Concern #3: Economic uncertainty
Economists forecast an almost 100% chance of a recession within the next 12 months. Central banks know this. And the WGC survey results revealed 75% of them hold gold for its “performance during times of crisis” and “long-term store of value.”
What does their decision to buy record-breaking amounts of gold mean for you and me?
Central banks control the economy. They print our money. They set our interest rates. They see data unavailable to the rest of us — even financial advisors and Wall Street.
And this means they can keep a finger on the pulse of the economy at all times.
In many ways, they are the pulse of the economy.
So, when the Smartest Money decides to buy more gold in 2022 than in any full year since 1967… it’s easy to assume they know what they are doing.
But gold hasn’t been strong this year, has it? Is this the right time to buy?
We cannot ask central banks. But their actions seem to answer a resounding “Yes!”
We know why they are hoarding gold now. And they may also be taking quick advantage of the price of gold, which may be a temporary bargain. But we must also remember:
Gold has outperformed the S&P 500, the Dow Jones, the Nasdaq, and emerging market stocks in 2022.
That makes gold one of the best-performing assets over the last year. And according to Juan Carlos Artigas, the global head of research at the World Gold Council:
“Gold continues to prove itself as a global market,” and “it should have a strategic place in an investor’s portfolio.”
In other words, the Smartest Money considers gold a crucial asset to own in this uncertain environment. And if you’ve been considering gold for your savings but haven’t yet made your move… it may be time to take clues from the Smartest Money’s moves.