A lot of attention has been focused on gold since the World Gold Council (WGC) last reported that central banks are continuing to purchase gold well into 2019.
If you’ve been paying attention to the news, 2018 saw a net increase of up to 651.5 metric tonnes attributable to central bank buying.
This is the largest volume of central bank gold purchases since 1967.
Aside from Russia’s central bank, the largest buyer mostly likely due to its efforts toward liquidating US Treasuries in light of current sanctions, most of the purchases were concentrated among a few central banks.
Bear in mind, however, that even a small purchase by a central bank can be quite massive in relation to the scale typical of most investors.
The motivations driving central banks to load up on the yellow metal also differ.
While most banks are looking to diversify their portfolios, shedding a portion of their US Treasuries due to economic and geopolitical uncertainties, other countries--namely China and Russia--are slowly working toward establishing a new gold standard.
This new gold standard will not materialize overnight, of course. Nevertheless, the days of the US dollar as the world’s reserve currency may soon be coming to an end.
But what other currencies might countries turn to if not the dollar?
Even if China and Russia were able to challenge the dollar with a gold-backed yuan or a gold-backed ruble, global adoption of either currency may see some resistance.
Countries across the globe may instead turn to the euro or even the yen before relinquishing their faith in fiat.
But when the world’s faith in fiat money finally does reach a breaking point, a global crisis will ensue.
And gold will have its reckoning...as it had done over the course of two and half millennia.
March 29, 2019, marks the start of the Bank of International Settlements’ “Basel 3” rules.
Under these rules, an incorporeal transformation will take place: central banks’ gold reserves, upon being marked to market, will be equivalent to cash.
Gold, in the eyes of the BIS, is once again...officially money. This can only be bullish for gold.
Leading up to this date, there have been many accusations of central banks shorting the paper gold markets in order to accumulate as much of the physical metal before the March 29 start date.
The Italian journal II SOle/24 Ore comes to mind as one of the main instigators behind this conspiracy-like claim.
Whether this claim can be substantiated or not, it is a legitimate tactic, one that JPMorgan had been using in the silver markets since it inherited the Bear Stearns massive silver short position in 2008.
But if it is true, then central banks may immediately cease the suppression of gold prices. After all, supporting gold prices can only improve their balance sheets, as their gold reserves, marked to market, will now be as good as cash.
Yet again, perhaps nothing perceptible will happen on March 29.
Bear in mind, however, that history has been known to unleash disruptions upon the world with nothing more than a quiet whisper.
March 29 may just be one of them.