Analysts were stunned this week to learn that China’s central bank continued its 4-month gold buying spree unabated in March.
It was one of several pieces of news that drove gold futures above $1,300/oz on Monday.
As the world’s second largest economy, China’s use of physical gold vs. world reserve currencies in its official reserves is something economists around the globe watch closely.
The People’s Bank of China just added 360,000 ounces of gold to its foreign reserves last month. This brings their recent buying binge to 1.38 million ounces worth over $1.7 billion dollars!
Russia may be the world’s biggest current gold buyer, but China isn’t far behind. China’s gold hoard now totals a massive 60.62 million ounces as of the end of March.
With global economic growth slowing, trade and political tensions rising, the yield curve in inversion, and market volatility increasing, safe haven assets are looking more appealing to consider than ever.
A new report from research outfit Metals Focus has laid out a strong case for stronger safe-haven demand and higher gold prices in 2019. “Conditions are now becoming more supportive for a late-2019 rally,” the report said. “We see prices testing the $1,400/oz mark.”
This would represent about an 8% price increase from gold’s current level of $1,292/oz (as of 10:32am today).
CENTRAL BANKS BUY STEADILY… FOR LAST NINE YEARS!
As a group, central banks have been net buyers of gold since 2010. The rate is still increasing!
2018 was the biggest buying year for central bank gold buying since 1967.
In fact, their purchases more than doubled – and it isn’t just the same buyers. The Reserve Bank of India has just started buying gold for the first time in a decade.
The uncertain future of the U.S. dollar and mounting trade concerns are two big reasons for China’s zeal for gold. “This increased buying comes at a time when trade tensions between the U.S. and China continue to drag on,” ING analysts said.
According to research from Bank of America Merrill Lynch (BoAML), the U.S. dollar is on the wane and continuing to lose status around the world. While it still remains the dominant reserve currency, its influence is steadily falling and China’s gold hoard is one example.
“[The dollar’s] market share has declined as the global economy has become less U.S. and USD-centric,” BOML analysts say. “De-dollarization is an important factor behind the addition of gold to central bank gold reserves.”
Analysts have said they don’t expect central banks to stop buying gold anytime soon as countries like China reduce their dependence on the dollar. “Naturally, a weaker U.S. dollar index is a tailwind for gold,” said Michael Armbruster, managing partner at Altavest.
Bank of America Merrill Lynch see global U.S. dollar deleveraging as a growing trend that will benefit gold prices. “We believe that de-dollarization could also lead to rising share of gold holdings in gold portfolios,” the analysts said in a report published last month.
WHY IS GOLD GOING UP?
There are many reasons why gold prices are up over the last year:
- Safe haven buying by retirement investors as well as central banks
- Rising market volatility and uncertainty
- U.S dollar under pressure
- Weak U.S. economic data and results
- New orders for U.S.-made goods are down
- Global growth slowdown
- Europe’s largest economy (Germany) is seeing meager growth and rising issues
- Brexit uncertainty continues; British shoppers are staying home and saving
Are you optimistic, or pessimistic, about gold from here?
LET US HELP YOU FIND YOUR BALANCE TODAY
These days, Morgan Stanley is telling retirement investors to batten down the hatches!
Lance Roberts, analyst with Real Investment Report, points out today’s economy is strongly similar to the environment prior to the last recession.
“We are looking at the longest expansion cycle in the history of the U.S.,” says Roberts. “[Investors] have forgotten the last time the U.S. entered into such a state of ‘economic bliss.’”
That would be… right before the last big market crash of 2008.
We like to remind our readers that we don’t recommend market timing.
In fact, we recommend the opposite… just get informed and prepared. For all seasons and all kinds of markets. That’s the kind of long term thinking your legacy deserves.
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