Gold Prices: Central Banks Buying Gold Even During Toughest Times

Central Banks Making a Very Strong Case for Higher Gold Prices

Gold is being ignored these days in light of skyrocketing Bitcoin, but it’s presenting a great opportunity. Gold prices could surge a lot, and those who own it could make hefty gains.

What’s so good about the yellow precious metal?

gold prices

Investors should pay attention to the big buyers in the gold market: the central banks. They remain big gold buyers, and it doesn’t look like they care about where gold prices go, whatsoever. The central banks just want more of it.

Consider this: in 2020, central banks purchased 272.9 tonnes of gold bullion for their reserves. (Source: “Gold Demand Trends Full Year and Q4 2020,” World Gold Council, January 28, 2021.)

Admittedly, this figure was 59% below what they purchased in 2019, but it says one thing: even in the toughest economic times, central banks are buying gold and like the metal. Let’s be honest here, 2020 wasn’t a great year for central banks. They had to take extreme measures to make sure their respective economies didn’t fall apart. One would fully expect them to sell their gold. As a whole, they didn’t. They bought more instead.

What’s Next?

Understand the reasoning for central banks to buy gold: the yellow precious metal essentially reduces volatility in their reserves. Since they own a lot of currencies in their reserves, they need something that hedges against currencies. Gold does a great job.

You also have to understand who has been buying gold lately. It’s not the major central banks like the U.S. Federal Reserve or the European Central Bank (ECB); it’s the smaller banks. For the longest time, the smaller central banks were under the impression that the U.S. dollar and other currencies were great for their reserves. They now need some sort of anchor in their reserves, and gold is what they are gravitating toward.

So far, it has been central banks from emerging economies that have been buying gold. They are not done yet. They still need a lot more of the precious metal, and they will buy without telling anyone. If they blatantly announce it, they risk moving gold prices higher.

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Disclaimer: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and ...

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