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Editor’s Commentary: It wasn’t but a few years ago that economists judged central bank sentiment about precious metals on how much they sold. If they were selling less gold than normal, that was a sign that they were concerned about the markets. Today and for the last couple of years, central banks have been buying extreme levels of gold and would almost certainly be setting all-time records if it wasn’t for Turkey’s massive sale of gold to its own struggling citizens as they wrestle with massive inflation.
This is why most economists have ignored discussing gold recently. They are still thinking in terms of near-future repercussions and forecasts; the level of gold buying by central banks should mean markets are tanking already. Since they are not, economists have dismissed the gold buying as anomalous. What they’re missing, whether out of intent or ignorance, is that central banks are buying gold in preparation for the burgeoning Central Bank Digital Currencies.
It behooves Americans to follow the real experts. While most economists are still bullish on gold, they are not nearly bullish enough when we consider the trajectory of worldwide economies, de-dollarization, CBDCs, and inflation that continues to rise despite ongoing rate hikes. The central banks seem to know what many economists ignore, that precious metals are poised to be one of the best (and possibly only) major asset class that doesn’t bottom out if/when the “economic crap” hits the fan.
The article below by Peter Reagan breaks down what’s been happening so far. It’s no secret that we’re huge fans of physical precious metals in your safe or backing your retirement accounts, but the prospect of these gold surges continuing is not something we want to hear. Yes, it’s great for our customers but unfortunately it means the vast majority of Americans who do not have the cash or retirement accounts to put into precious metals will suffer. We do NOT delight in the upcoming events that could send gold and silver skyrocketing, but we’ll help people prepare for them nonetheless. With that said, here’s Peter Reagan…
It’s mentioned often how central banks are one of the pillars of support when it comes to gold prices. Lately, though, it seems that they’ve taken on an even more prominent role in the market.
JP Morgan’s analysis recently said that global gold investment has reached the highest level since 2012. They downplayed the role of central banks, noting that individual investors and traders have become increasingly active in the gold market. And it’s hard to argue that gold, increasingly, is becoming a mainstream rather than an “alternative” asset.
But it seems we can’t check the headlines anymore without seeing a report of central bank gold buying. Even Turkey’s decision to sell a fraction of its gold reserves (which is probably the reason 2023 central bank gold buying won’t top last year’s record number) was, counterintuitively, a story about gold demand. The Turkish central bank sold some 71 tons of gold on the domestic market, to its own citizens. Thanks to inflation, citizens have all but abandoned the lira in favor of gold. We’ve reported on the Turkish enthusiasm for gold previously so we won’t recap the nation’s struggles at length.
Still, how strange is it that the Turkish central bank, which was responsible for the nation’s near-50% inflation is now selling gold bullion? And getting paid for it in the very same lira they’d printed a couple weeks ago? Seems like the citizens of Turkey are fed up with Modern Monetary Theory, and voting against it with their wallets…
In other news, China has now extended its streak of official gold purchases for the tenth consecutive month. The 930,000 oz of gold bought in August bring the nation’s official reserves to 2,165 tons. (And, as we know, that figure is probably more than a little under-reported.)
It also shouldn’t escape us that this massive expansion of official central bank gold holdings coincides with a reduction in foreign exchange reserves by 1.38%, the lowest level since the start of the year. In simpler terms, China’s using currency to buy gold – just like you or I would.
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It wasn’t that long ago that it would have been strange to find an active central banker talking about gold. Yet today, we find central banks aren’t just hoarding gold themselves, they’re actively encouraging gold ownership among their citizens.
Strange times, indeed.
Article cross-posted from Birch.
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