Look at Central Banks to See Where Gold Prices Are Headed
Wondering where gold prices are headed next? Pay attention to central banks.
Mind you, don’t waste too much time on major central banks like the U.S. Federal Reserve or the German Bundesbank. They already have a lot of gold and don’t really need much more.
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Look at smaller central banks that don’t have much gold, relative to their overall reserve. They could really give a boost to gold prices.
For example, look at the Central Bank of Russia. It’s currently working very hard to diversify its assets, and one of the things it needs is gold.
How desperately is the Central Bank of Russia looking to buy gold? Consider this: between March 2015 and November 2016, it added the precious metal to its reserve every month, purchasing a total of 407.5 tonnes of gold in that time! (Source: “Changes in World Gold Official Reserves,” World Gold Council, March 9, 2017.)
But what’s been mentioned is very short-sighted.
Between January 2002 and January 2017, the Central Bank of Russia has added 1,222 tonnes of gold to its reserves. And, if you look closely, there are no signs that the central bank is stopping its gold-buying spree any time soon.
Here’s the thing: the Central Bank of Russia is just one example. There are several small central banks that are persistent in buying the precious metal. To name two, the National Bank of Kazakhstan and the People’s Bank of China.
Why Central Banks Need Gold
Dear reader, there’s one thing I see: central banks buying gold is not very well reported in the mainstream media. Did you know that 2016 marked the seventh consecutive year when central banks were net buyers of gold?
Again, it won’t be asked in the mainstream media: why do central banks need gold? The reason behind this is simple. Know that around the world, there’s a deadly trend in play to devalue currencies.
Major central banks are working hard to devalue their currencies so their respective economies can excel.
Now, imagine that you are a governor of a central bank and hold a lot of currencies in your reserves. Wouldn’t you rush for something that reduces the volatility in your bank’s reserve? Gold does this.
Central Banks to Cause Super Spike in Gold Prices?
When I look at central banks, I see them as an elephant that’s trying to step in a small swimming pool slowly. They won’t announce when they will buy the precious metal, but know their actions speak louder than words.
Know this: central banks have a lot of cash, and the precious metals market is small. Their continuous purchases could cause a super spike in gold prices.
Keeping all this in mind, my stance on gold prices becomes even stronger, and I stick to my forecast of gold at $2,000 per ounce in the next few years. I understand that, at this point, a $2,000 target on gold prices sounds way too optimistic, but it could happen. The fundamentals are making a solid case for it.
I will end with something I have been saying for a while: mining stocks are selling for very cheap valuations these days. If gold prices soar, mining shares could be the best-performing assets.
