Asset Strategies International: Why Central Banks Bought Gold in Record Numbers
Since 2010, gold prices have trended first lower, then higher. The net result has been a sideways move, with the metal around $2,000 per ounce. But one group have been regular, steady, and even large buyers of the metal.
That’s the central banks. They’re buying at the fastest rate since the 1950s and 1960s. And they’ve been net buyers of gold for the past 13 years. What explains the move?
A few factors are at play. First, gold is still seen as a hedge against uncertainties and crisis. That makes the metal valuable for a central bank to hold for unforeseen circumstances.
Second, gold tends to act as a long-term store of value. The past few years has seen countries rapidly expand their monetary supply. That’s caused inflation. Gold tends to hold its own against inflation. That makes it a more likely store of value than foreign currencies.
Next, some countries may also be concerned about the global financial system. Russia was cut off from the global payment system, underscoring that country’s desire to hold gold. Consequently, other countries may not want to be in a similar situation where they get cut off, no matter the reason.
Meanwhile, with gold acting as wealth insurance and a crisis hedge, it’s likely the metal will continue to track higher in the months ahead. Investors may want to emulate central banks and accumulate.
