Countries Are Beginning To Stockpile Gold

The Bank of China had increased its gold reserves from 1842.6 tons to 1,852 tons in December 2018. This increase represents the first major purchase of gold by the Bank of China since 2016. And there appears to be a purpose for the renewed interest in gold.

While the U.S. Federal Reserve Bank has attempted to keep gold prices low in an effort to preserve world dominance of the U.S. dollar, other countries have taken advantage by accumulating more precious metal at bargain prices.

China isn’t the only country bullish on gold. For the first time in years, both Poland and Hungary have amassed gold in 2018, and other central banks are following suit.

Many global central banks have been hoarding gold for more than a decade. Prior to the abandonment of the gold standard, this was common practice. The Federal Reserve or the Bank of England and other central banks were in the business of buying and selling gold and adding to their reserves. Gold was directly connected to the value of a currency. Many countries tied their currency to the value of the U.S. dollar.

Under President Nixon, the gold standard ceased to exist in 1971. The value of global currency quickly became arbitrary, depending what a country’s central bank said it was worth. Countries began to sell off their gold and continued to do so up to the 2007 financial crisis. This turned the selling tide around as central banks once again slowly began to buy gold. The main reason for gold’s renewed popularity is that many countries want to escape the dominance of the U.S. dollar, which has been the leading global currency. Russia is actively attempting to divert its own economy from the U.S. economy (or dollar). The more gold countries such as China and Russia hold, the greater the threat to the U.S. dollar.

Russia has been adding to its gold reserves since 2005. During the first half of this year, Russia purchased 3.381 million ounces of gold. Turkey added 1.223 million ounces to its reserves. Both countries have broken their previous gold-buying record. With global relationships becoming murky, and trade wars as a real possibility, many central banks will likely continue to covet precious gold. This is quite a change from two decades ago when central banks were eager to rid themselves of gold. Now, they can’t buy enough of it.

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