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Central Banks’ Actions Toward Gold Speak Louder Than Words

Central Banks Gold
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As with any meaningful exchange of ideas between two parties, what someone says (or doesn’t say) pales in comparison to what one does.

Talk and silence say very little, whereas actions say everything.

The importance of this principle applies to finance, wherein many financial experts may recommend one thing yet hold another.

And it particularly applies to the Federal Reserve and gold, wherein our current and former Fed Chiefs (Powell and Yellen) may have had little to say about gold, and their predecessor (Bernanke) saying little beyond “no one really understands gold prices,” or that gold is “an unusual asset.”

Again, actions speak know the cliche.

So what have central banks been doing over the last decade? They’ve been avid gold buyers.

The Fed isn’t among these large buyers. They just hold the world’s largest gold reserves.

And joining the others in this buying spree would only further devalue the dollar.

As for the rest of the world, central bank purchases in 2018 have risen over 36% from the previous year, approximately 366 tons. These purchases mark the largest rate of buying since 1971 when Nixon put an end to the gold standard.

Gold ownership among the world’s central banks is currently at a 50-year high.

So while most Americans would consider the “gold standard” an archaic and laughable fringe topic, a matter that occasionally rises to the surface of public discussion and annoyance, proponents of which are typically humored if not ridiculed in popular media, central banks have been buying in droves.

And while the Federal Reserve says close to nothing about gold, as if it were a non-issue, a non-topic, or a matter of little to no relevance, the US happens to be the largest holder of gold reserves in the world.

So where do central banks currently stand with regard to gold? Here are the top six countries holding the largest gold reserves:

  1. The United States: the US Federal Reserve is currently holding 8,133.5 tons, 75.2% comprising its foreign reserves. Again, the Fed has not participated in this most recent buying spree mainly to prevent further dollar devaluations.
  2. Germ

    any: its central bank currently holds 3,370 tons, accounting for 70% of their foreign reserves. They’re also repatriating 674 tons of gold from the US Federal Reserve and the Banque de France. Having gone through severe hyperinflation back in the 1930s, Germany certainly learned a thing or two about the fallibility of fiat.

  3. Italy: aiming to hold 2,451.8 tons of gold, the Bank of Italy considers gold a safe haven against economic decline and US dollar volatility. Currently, Italy’s gold comprises 67.9% of its foreign reserves.
  4. France: holding 2,436 tons of gold in reserve, France ceased its gold-selling to maintain the level. Its gold stash also amounts to roughly 60% of its foreign reserves. In addition to the gold-selling freeze, their National Front Party has also advocated for the repatriation of gold held in foreign nations.
  5. Russia: Russia’s central bank has been one of the largest gold buyers over the last six years. In fact, their gold holdings, currently at 2,119.2 tons, surpassed China’s reserves in 2017, making Russia’s gold reserves the fifth largest in the world. During that same year, Russia also bought 224 tons of gold and sold off a large portion of its US Treasury holdings. Are they trying to devalue the US dollar? Quite possibly. But they are also using gold to hedge against current US sanctions, and the possibility of having their assets frozen. Last year, Russia purchased 8.8 million ounces of gold.
  6. China: China has officially reported that it is holding 1,864.3 tons of gold in reserve. Yet many of China’s purchases are reportedly off the books. What is certain is that they are expanding their reserves slowly. And they also happen to lead the world in gold production.

If this tells us anything, it’s that global central banks rely on gold as a safe haven and hedge against economic uncertainty.

Gold investors should take the recent surge in buying as an indication that central banks may be anticipating a halt to global economic growth. After all, many economists are predicting a recession between now and 2020.

Gold investors should also consider the significant impact that central bank buying will have on gold prices, as many central banks plan to continue their purchases.

In short, if there ever is an ideal time to buy gold, for protection or profit it’s right now before central banks push gold prices to levels too high for most investors to afford.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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