Ignore what central bankers are saying; instead, watch what they are doing.

While they poo-poo gold or pretend it doesn't exist, global central banks have been quietly but aggressively accumulating gold bullion for several years now. The Central Bank of Russia, for example, has been a consistent buyer of gold.

Other major central banks have also been acquiring and holding the metal, although some scaled back last year following the pandemic and record-high prices for the metal.

Given more favorable market conditions and greater risks to holding U.S. dollar reserves, central banks may soon ramp up their gold buying again.

The Hungarian Central Bank cited “long-term national and economic policy strategy objectives” for its move.

The central bank also mentioned new risks that have developed as a result of the ongoing Covid-19 pandemic that has shaken the world.

The bank described gold as one of the most crucial reserve assets worldwide.

Central bank gold buying over the last decade helped support the price of gold. The sharp trend higher in central bank purchases did, however, come to a pause last year as record prices and the economic consequences of the global pandemic response took hold.

Central bank acquisitions got off to a slow start in 2021. But as the buying trend is resuming, these financial behemoths will likely become net buyers for the year.

With global central banks not only buying but also holding so much physical gold bullion, it naturally begs the question of why.

There are several reasons that these powerful financial institutions look to add gold to their reserves. These include diversification, stability, and potential price appreciation.

Diversification

It is no secret that gold can add portfolio diversity.

The yellow metal tends to have a negative correlation to stocks, and often moves inversely to the Federal Reserve Note “dollar” index as well. This means that as the value of equity portfolios declines or as dollar-denominated holdings lose value, the price of gold may rise, all or partially offsetting those losses.

Stability

The great J.P. Morgan once stated “Gold is money, everything else is credit.”

In our view, nothing could be more true.

As a reliable store of wealth and value for thousands of years, physical gold has a reputation as a protector of wealth and value.

Unlike fiat, or paper currencies, gold cannot be created out of thin air on a whim. It cannot be manipulated or otherwise messed with to facilitate desired outcomes. The gold market is driven simply by the laws of supply and demand.

The Dutch Central Bank put it well, noting, “A bar of gold always keeps its value. Crisis or not. That gives a safe feeling. The gold holdings of a central bank are therefore a beacon of confidence.”

Price Appreciation

The gold market has come a long way in recent years and may just be getting started on a multiyear bull run higher.

The yellow metal has, since the early 2000s, more than quadrupled in value as measured in Federal Reserve Notes.

Kicking off the 21st Century at around $400 per ounce, the yellow metal has made fresh all-time highs last summer at nearly $2100 per ounce and still trades near or above its all-time highs in virtually all world currencies.

Given the free-wheeling printing press policies of every central bank, there simply is no barrier to sharply higher gold prices.

If the dollar continues to weaken, pushing inflation higher, the price of gold could easily double or more from recent levels – putting $5000 per ounce on the table.

There are obviously many more reasons to own physical gold. The three outlined here are some of the biggest, however, and are primary drivers of central bank buying.

If the biggest, most powerful financial institutions in the world see the value opportunity presented by gold ownership, shouldn’t you?

Money Metals Exchange and its staff do not act as personal investment advisors for any specific individual. Nor do we advocate the purchase or sale of any regulated security listed on any exchange for any specific individual. Readers and customers should be aware that, although our track record is excellent, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future. You are responsible for your investment decisions, and they should be made in consultation with your own advisors. By purchasing through Money Metals, you understand our company not responsible for any losses caused by your investment decisions, nor do we have any claim to any market gains you may enjoy. This Website is provided “as is,” and Money Metals disclaims all warranties (express or implied) and any and all responsibility or liability for the accuracy, legality, reliability, or availability of any content on the Website.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD battles 1.21 after mixed US data

EUR/USD is trading above 1.21, choppy after US retail sales missed estimates with a drop of 1.3% but on top of upward revisions. Increases in producer prices accelerated last month.

EUR/USD News

GBP/USD bounces off two-month lows

GBP/USD has bounced off the fresh two-month low of 1.4034 but remains depressed. The delay in Britain's reopening is outweighing upbeat UK job figures. Tension is mounting ahead of the Fed.

GBP/USD News

XAU/USD looks to $1880 after recapturing $1858

Gold price is attempting a minor recovery above $1850, although the bulls appear to lack conviction, as the US dollar continues to hover near monthly highs.

Gold News

Bitcoin continues to range higher, but altcoins suffer

Bitcoin price has experienced a 32% upswing over the past six days and might retrace to gather more steam. Ethereum price performance is lackluster as it rallied roughly 17% in the same period as BTC.

Read more

Tesla still stuck in first gear

Tesla stock recovered last week as some investor enthusiasm finally returned to the stock with the release of the new Model S Plaid at Tesla's Freemont factory.

Read more

Majors

Cryptocurrencies

Signatures