Central Banks Are Making an Extremely Bullish Case for Gold Prices
You have to watch central banks to see where gold prices could be headed next. They are actively involved these days and could take the yellow precious metal immensely higher.
Before going into any details, know that central banks have a lot of money to buy gold. Think of them as an elephant trying to enter a swimming pool. No matter how quietly and smoothly it goes into the pool, the water level will rise. This could be the case with central banks as well. They may send gold prices soaring.
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Now, look at how eager central banks are to buy gold.
Consider the Russian central bank. Over the past few years, Russia has come under various sanctions from the U.S. So, the Russian central bank has decided the best move would be to de-dollarize its reserve. One way it could do this is by increasing its gold reserves.
In 2018, the Russian central bank dumped its U.S. debt holdings and bought more gold—it purchased 8.8 million troy ounces of gold in 2018 versus 7.2 million ounces in 2017. This represents an increase of 22% year-over-year. (Source: “Russia becomes world’s fifth biggest gold holder after sanctions,” Reuters, January 18, 2019.)
Thanks to all this buying, Russia is now the fifth-biggest gold holder in the world.
It’s Not Just the Russian Central Bank Buying Gold
Russia is just one extraordinary example. Central banks around the world are actively buying gold bullion for their reserves.
In the third quarter of 2018, central banks purchased 148.4 tonnes of the yellow precious metal for their reserves. This was 22% higher than the same period a year ago and marked the 31st quarter of consecutive purchases. (Source: “Gold Demand Trends Q3 2018,” Goldhub, November 1, 2018.)
Extrapolating a little more, in the first three quarters of 2018, central banks purchased 351.5 tonnes of gold bullion. In the entire year of 2017, their gold purchases amounted to 374.8 tonnes. We don’t have the yearly data for 2018 just yet, but it’s very likely that their gold buying increased between 2017 and 2018.
Could Gold Prices Soar Like Palladium Is Surging These Days?
Dear reader, over the past few years, gold has been ignored and disregarded. In the meantime, the fundamentals have improved—buyers haven’t dissipated and the supply side has been crushed. This is very bullish.
I am seeing central banks make an extremely bullish case for much higher gold prices. It doesn’t look like they will be putting a break to their gold buying anytime soon and this could be great for gold prices.
I will end with some food for thought.
These days, in the palladium market, something interesting is happening; there are a lot of supply issues. Those looking to buy palladium are having a lot of trouble getting bars of palladium, even though, in the paper market, there’s a lot of palladium out there. As a result, palladium prices are skyrocketing. In August 2018, an ounce of palladium traded at around $800.00. Now, it trades above $1,300. This represents an increase of over 62% in a matter of months.
I really question if gold prices will see something like what’s happening in the palladium market. The supply side is dismal; there are already a lot of buyers. In case there’s some sort of event that forces investors to seek safety, we could have a shortage in the gold market.
With this, it’s possible that gold prices will see a violent move to the upside.
