Why are the Central Banks around the world buying Gold? We can only speculate on the why as they are not willing to provide a lot of useful answers to the question. With that in mind, here are some facts about the buying patterns which are available regarding central banks gold purchases. Russia and China central banks are two of the biggest buyers of gold over the last few years with Turkey, Kazakhstan, India, Iraq, Poland and Hungary as large gold accumulators, according to the World Gold Council. Gold demand in 2018 reached 4,345.1 tons, up from 4,159.9 tons, in 2017. Central Bank gold buying in 2018 was the highest in 50 years according to Gold Hub. Gold overall demand for 2019 was 4,355.7 tons and Central Banks purchased 650 tons, the second highest level in the last 50 years.
The reasons cited for central bank buying gold focuses on two main drivers 1) A hedge against the US dollar. Buying gold diversifies against US dollar denominated assets such as oil and bank reserves used to make trade purchases in US dollars. 2) Inflation hedge. Central banks want to protect against inflation devaluing their currency and the US dollars they hold to do foreign trading.
What does this tell us? We should be aware of the trends for inflation and the value of the US dollar. As inflation increases and/or the US dollar decreases, gold should continue to rise. A key to both of these indicators is the US debt which can impact both.
A wise man said, ” If you are unsure of what to do, follow the money.” The biggest money group in the world is the Central Banks.
US Money Reserve
World Gold Council