As 2023 winds down, the world’s “smartest money” is hoovering and hoarding gold at the fastest pace since 1967.
According to the World Gold Council (WGC), global central banks bought another 800 tons of gold in the first 9 months of this year — a 14% increase year-over-year… and they’re still buying.
China is leading the pack with an incredible 181 tons added to their holdings in the first three quarters of the year. Poland added 57 tons, and Turkey added 39. Eight others added a ton or more to their holdings.
And WGC chief market strategist John Reade says the total central bank purchase for 2023 could “get close to or exceed” 2022’s 1,136 tons.
What’s driving this global bullion binge?
Central banks hold gold to diversify their reserves, improve their balance sheets, and gain liquidity from an asset without credit risk.
And now, amid concerns over the strength of the US dollar, the US financial system, and rising geopolitical concerns, analysts believe the increased gold buying may also be part of a global trend toward de-dollarization.
As Yahoo Finance reports, it’s all about “countries trying to diversify reserves away from the dollar, as well as attempts by some nations to de-dollarize trade relationships by conducting transactions in local currencies.”
The Street says, “emerging market banks have been buying gold to diversify away from the dollar since [gold] can be swapped into any currency.”
And US News reports, “Gold, the most ancient widely accepted international currency, has chipped away at some of the dollar’s dominance.”
These international de-dollarization efforts increased after the US froze billions of dollars in Russia’s foreign reserves in March 2022 following the invasion of Ukraine.
In response to US sanctions, Russia boosted its gold holdings. And spooked central banks – who saw what happened and want to help protect their country’s fiscal interests against any potential US sanctions – have been repatriating their gold and shifting away from reliance on the greenback.
And this, declared Russian president Vladimir Putin in a video speech during the BRICS summit in August, is an “irreversible process.”
At the same time, the World Gold Council says central banks are buying gold as a “flight towards safer assets amid scorching inflation.”
This means, ironically, central banks are now hedging against a financial problem arguably caused by… central banks.
In the US, the Fed printed money against a backdrop of near-zero interest rates for over a decade. And that flood of “easy money” helped keep America’s economic turbulence at bay for the most part.
However, the influx of printed currency also devalued the US dollar through simple dilution.
This value dilution tends to increase the prices of goods. And right now, the dollar is still losing value, and inflation is still high in the US and worldwide.
But for individual gold investors and central banks alike, the good news is:
Gold cannot be created like a currency can. Only so much exists or will ever exist. And extracting it from the earth is a slow, complicated, expensive process.
As a result, gold’s supply is always finite, and its value can never go to zero.
This intrinsic value, coupled with the basic dynamics of supply and demand, has helped gold hold its value historically.
And since gold’s price tends to rise as the value of the dollar falls, the precious metal makes an excellent hedge against inflation.
Which is wise to consider right now because inflation will likely remain high into 2024.
Fed Chief Jerome Powell says they have “a long way to go” before inflation is controlled.
At the same time, the Treasury has announced plans to borrow over $800 billion between January and March 2024. And this is on top of its more than $33 trillion national debt.
Now, add the costs of servicing the trillion-dollar-per-year interest on that debt and it’s easy to see how the US is in a challenging spot financially.
Deficit spending will likely continue…
Troubles for the US dollar may grow…
Central banks, with their fingers on the pulse of the world’s economic heartbeat, are aware of these growing financial stresses…
And WGC data shows at least 70% of the central banks expect to increase their gold reserves over the next 12 months.
What does all this mean for everyday Americans who want to protect their wealth and buying power against dollar devaluation, inflation and global uncertainty?
It means it’s time to pay close attention to what the central banks — the world’s “smartest money” — are doing and adjust accordingly. Because the effects of massive central bank gold buying may already be influencing gold’s price.
Last Friday, gold soared above $2,000 again. It’s hovering around $2,048 at the time of this writing, and central bank buying plus growing gold demand may push the price of gold to new highs in 2024.
As Forbes Finance Council says, “…now may be an ideal time to move assets into gold. Central banks are providing long-term price support” and “Individual investors could benefit by following the lead of central banks.”
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