You’ve probably noticed gold’s strong recovery since August 2018.
Gold’s rebound as reflected by their price in futures (GC)
It turns out that numerous central banks have purchased more gold in 2018 than in any year since 1971, the year the gold standard officially died.
How much gold did central banks buy last year? Approximately 651.5 tons, according to the World Gold Council. This marks a 74% increase from 2017 purchases.
Russia happened to be the largest buyer. That makes sense considering their efforts toward “de-dollarizing” their reserves. Following Russia are Turkey, Kazakhstan, and Hungary.
Hungary’s interest in gold is attributable to its need for an asset that carries no counterparty risk (unlike foreign debt securities).
When there is no counterparty risk, there is no risk of default, as the asset is sound.
Sound assets also make for the perfect hedge against economic uncertainties, particularly those that can affect the global financial system.
“Central banks chose to significantly increase their gold reserves, reinforcing the importance of gold as a reserve asset.”
-World Gold Council
Gold accumulation among central banks is expected to increase in 2019 by another 600 tons, according to Metals Focus Ltd, an industry consulting firm.
Given current geopolitical volatility, central banks are looking to gold not only for its safe haven and diversification attributes but for its growth potential under conditions of economic stress.
This move is a fundamental signal for investors to increase gold exposure now in order to benefit from a potentially significant rise in price.
- US Dollar strength triggered by rising interest rates has been pressuring gold prices. With the Fed’s now-dovish stance toward interest rate policy, the US dollar is now weakening, driving up gold prices.
- Global growth is beginning to experience a remarkable slowdown.
- Central banks are looking to diversify away from the US dollar via massive gold purchases (strengthening gold prices and further weakening the dollar).
In 2018, the global demand for gold rose by 4,351.1 tons. Coin purchases were at their highest levels in five years, with total bullion and coin demand up 1,090.2 tons.
That Gold ETF inflows decreased by 67% worldwide (except for most of Europe) may attest to the fact that Gold ETFs are not the same thing as the physical metal (paper gold is not equivalent to gold itself).
Currently, gold is continuing to climb, its uptrend supported by central bank purchases and the need to diversify from the US Dollar which continues to weaken.
As we’ve been saying over the last few years, particularly as gold prices began declining against strong fundamental factors signaling a strong “buy,” the ideal time to get into gold is now!
It’s true that you would have gotten a better price and more opportunities to build your portfolio in 2018 when gold was being dumped by investors into the coffers of central banks and financial institutions.
If there is anything consistent throughout the history of the markets, it’s that the investing public always misses the boat.
Average investors always sell en masse to the banks, financial institutions, and smart money investors who buy the panic.
But the good news is that gold’s rally is not over…and neither is the US Dollar’s decline.
We’re not saying that you should convert your dollars to gold 100%, but rather diversify your assets by allocating a minimum of 10% of your portfolio to gold.
Gold is the best insurance that you can get for your money.
If this were not true, central banks around the world would be loading up on US Treasuries and other dollar-denominated assets.
But most central banks have been passing up the dollar in favor of a safer asset; a hedge that possesses real growth potential in light of yet another financial crisis.
As you value your hard-earned wealth, you might want to consider doing the same.