Look at Central Banks for Direction on Gold Prices
Gold prices have done well, but the yellow precious metal could do even better in the coming months and quarters. A $2,000 price of gold is a real possibility.
You must pay attention to the big players in the gold market. They are making a very bullish case for investing in gold.
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Who are these big players in the gold market? Central banks.
As it stands, central banks are in love with gold. They are buying gold like never before, and it doesn’t look like they will stop anytime soon.
Central Banks Are In Love With Gold
Here’s some perspective.
In 2019, central banks added 650.3 tonnes of the yellow precious metal to their reserves. This is a little shy of the 656.2 tonnes they purchased in 2018, but still a respectable amount. (Source: “Gold Demand Trends Full year and Q4 2019,” World Gold Council, January 30, 2020.)
Looking at the bigger picture, central banks have been net purchasers of gold for 10 consecutive years. Over this period, they bought 5,000 tonnes of the precious metal.
They had a change of heart over the past decade. At the end of 2019, central banks around the world owned about 34,700 tonnes of gold bullion.
How much is this gold worth? In one tonne, there are 35,274 ounces, so 34,700 tonnes equate to about 1.2 billion ounces of gold. Using the current gold price of about $1,550, central banks own about $1.9 trillion worth of gold!
Preceding the last 10 years, central banks were actually net sellers of gold. Between 2000 and 2009, they sold over 4,400 tonnes of gold.
Who’s buying gold these days? It’s the central banks from emerging economies. They are working very hard to accumulate gold. It’s countries like Russia, China, India, and Turkey that have been buying gold. Nations with major economies like the U.S., Germany, and France already own a lot of it.
Here’s Why $2,000 Gold Could Be Possible
Dear reader, let me repeat, if you are not looking at the central banks buying gold, you could be making a big mistake.
You see, central banks hold a lot of fiat currencies in their reserves. And if there’s one thing they have learned over the past decade it’s that, sadly, you can’t trust paper money. It declines in value and it’s not the best store of wealth.
Gold is one of the best hedges against currency devaluation; it preserves wealth.
As it stands, the central banks still have a lot of fiat currency that needs to be hedged. So it’s not an out-of-this-world idea to expect them to continue buying gold.
Here’s the kicker: the gold supply has immensely suffered over the past five years. The gold industry is not ready for the demand from buyers like central banks. As the banks ramp up their purchases, we might see a shortage of some sort, which could send gold prices surging in no time.
Keeping all this in mind, I can’t help but be bullish on gold. Since 2016, the price of gold has trended higher. 2019 was a solid year for the yellow precious metal and I expect 2020 to be another great year for gold. This year, gold prices could make a solid run toward $2,000.
