by Sean Kelly
More central banks are planning to buy gold this year.
The increase in the number of central banks buying gold in 2020 is especially significant since central bank gold buying already reached record levels in 2019.
That’s according to the World Gold Council’s 2020 Central Bank Gold Reserves survey released this month. Twenty percent of central banks intend to acquire gold over the next twelve months according to the report. That compares to eight percent in the 2019 survey.
Key factors in the central banks’ gold acquisition plans are no different than those of informed individual investors.
Interest rates head the list of bankers’ concerns.
- “88 percent of respondents say that negative interest rates are a relevant factor for their reserve management decisions.
- “79 percent of respondents view gold’s performance during times of crisis as an important reason to hold gold, up from 59 percent in 2019.”
- “74 percent of respondents consider gold’s lack of default risk to be an important reason for holding the metal, up from 59 percent in 2019.”
The report concludes that these shifts signal an ongoing re-evaluation of gold’s role in the international monetary system and reflect “long-term concerns about fiscal sustainability as government stimulus is deployed to cushion the global economy.”
We are disappointed that the mainstream media does not feature reports on this news more prominently, since it is part of a global shift away from the dollar and will affect American living standards over time. In any case, this “de-dollarization” is a leading financial megatrend of our times and is a very bullish development for gold, of which our friends and clients deserve to be aware.
This megatrend affects individual precious metals investors in three specific ways. First, the central banks buy in huge quantities, last year adding 650 metric tons to their holdings.
It is a harbinger of a changing world order, a move to weaken the US geopolitical hegemony that had grown for the last century. As central banks move to gold, they do so mostly with the dollars they once held. Ten years ago, Russia held $180 billion in US Treasury securities. Now Russia’s gold holdings have grown, its dollar holdings have fallen so low they are reported down in the asterisks in US Treasury listings, below the holdings of countries like Iraq and Vietnam. This shift from dollars to gold over time removes some of the underpinnings of the dollar in global markets.
We also view gold in central bank reserves to be gold held in strong hands. That means it is not likely to be sold in the case of market events, such as margin call selling in a stock market crash.
The World Gold Council reported earlier this year that global investment demand for gold (bullion, coins, ETFs) in the first quarter of 2020 was 80 percent higher than during the same quarter in 2019.
More central banks are planning to buy gold this year. We recommend you do so, too. Before they do!