Tags: gold | personal wealth | central bank backstop | inflation | stock valuations | retirement

Trevor Gerszt: Central Banks Continue to Stock Up on Gold as Price Rises

Trevor Gerszt: Central Banks Continue to Stock Up on Gold as Price Rises
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Trevor Gerszt By Friday, 12 May 2023 01:29 PM EDT Current | Bio | Archive

If you’re looking to buy gold to help protect your wealth and safeguard your finances, you’re not the only one. Not only are investors around the world snapping up gold at a feverish pace, but central banks are also adding gold to their holdings at record levels.

Last year saw central bank gold purchases hit highs that hadn’t been seen since 1950, while this year the first quarter saw central banks hitting a new record for gold purchases. And that frenzied pace of gold purchases shows no signs of abating.

You might think that with gold now over $2,000 an ounce and within striking distance of its all-time high, central banks might not want to dive in. But evidently enough central bankers either want to shore up their balance sheets or don’t trust their currency holdings to maintain value through what could end up being a painful worldwide recession looming.

How Much Gold Are They Buying?

Central banks bought 1,136 tonnes of gold last year. With one tonne equal to 32,150.7 troy ounces, that’s equal to over 36.5 million ounces of gold. With total gold supply (mining plus recycling) last year coming to just over 4,750 tonnes, that means that central banks snapped up nearly 25% of total gold production.

What’s even more amazing is that central banks have shown no signs of slowing down this year. The World Gold Council initially thought that central banks couldn’t keep up 2022’s record pace this year, but they may be proven wrong.

Gold purchases from central banks totaled 228 tonnes through the first quarter of this year, the highest level since that data was first tracked in 2000. Nearly a third of that came from Singapore, which has added nearly 45% to its gold reserves so far this year.

If seasonality factors drive more purchases later in the year, or if the growing threat of recession spurs more purchases later this year, 2023 could end up eclipsing 2022’s record. And all of this is happening at a time when gold is more expensive than it ever has been.

Why Gold? Why Now?

Gold historically underpinned the workings of the world monetary system. The 19th century saw the development of the classical gold standard, in which world currencies were defined as weights of gold, enabling international trade due to currencies having a common backing.

The fact that gold backing of currencies also prevented governments from inflating their currencies was a benefit too. Money could only be created as long as there was gold to back it, thus preventing runaway deficit spending and keeping governments fiscally responsible.

World War I saw the death of the gold standard, or rather its strangulation and murder by governments who wanted to be free from its strictures so that they could fight the Great War. Once unencumbered by gold, these governments began to create money out of thin air in order to finance war spending. The natural result was massive inflation and, in the aftermath of the war, financial depression.

There were abortive attempts to reintroduce the gold standard in the 1920s which were doomed to failure, yet gold never really left the scene. Even after World War II and the adoption of the Bretton Woods monetary regime, gold played a role, as the US dollar that became the world’s reserve currency was supposed to be redeemable by foreign governments for gold on demand.

The system eventually broke down as successive U.S. governments once again tried to take advantage and create more dollars than there was gold backing. US gold reserves began to decline as foreign governments came to the gold window to redeem their dollars, culminating in President Nixon’s closure of the gold window in 1971.

Yet even after that final severing of the dollar’s last official link with gold, central banks around the world continued to hold gold on their balance sheets. They understand that in the event that currencies collapse and other assets lose value, gold will maintain its value. Gold is the last-ditch asset, the ultimate backstop for central banks who are trying to protect themselves, their countries, and their currencies.

The reason central banks are buying gold now is because they realize that we’re entering dangerous territory, with high inflation and asset bubbles posing threats to the world economy. Just like individual investors who are trying to protect their own financial well-being with gold, central banks are cognizant of what’s coming down the pike, and are trying to add as much gold to their balance sheets as possible to protect themselves against a future economic downturn.

Central bankers once thought that gold was obsolete, and they thought they didn’t need gold anymore. Former Federal Reserve Chairman Alan Greenspan once famously said that the Fed’s conduct of monetary policy had successfully replicated that of the gold standard. But the events of 2008 and afterward showed how mistaken those beliefs were.

Gold and Your Finances

In fact, it was the events of 2008 and the years following that showed many Americans just how valuable gold could be. While markets lost more than 50% of their value between 2007 and 2009, gold gained 25%. And gold continued to climb, setting record highs in 2011.

Gold once again took off in 2020, and now this year is climbing as markets are trying to figure out the Fed’s monetary policy roadmap as well as the direction the economy will take. And if the economy enters into recession as it did in 2008, most people expect the gold price to really take off.

Many Americans have already started to protect themselves with gold, whether it’s starting a gold IRA or buying gold coins to store at home. There are numerous options available to anyone who wants to buy gold, young or old, rich or not-so-rich, and you can find them at Goldco.

Goldco has helped thousands of customers over the years benefit from owning gold, and with over $1 billion in precious metals placements we have the experience necessary to provide you with what you’re looking for. If you want to protect your hard-earned savings against recession, call Goldco today to learn more about how gold can help you.
Trevor Gerszt is the founder and CEO of Goldco, a precious metals dealer in Los Angeles. For more than 20 years, Trevor has sought out ways to help people build long-term wealth through the security and stability of precious metals and other alternative assets. Goldco is A+ Rated by the Better Business Bureau, a 5-Time INC 500 Winner and has countless 5-Star Reviews for its quality customer service, dependability and strong reputation.

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If you're looking to buy gold to help protect your wealth and safeguard your finances, you're not the only one.
gold, personal wealth, central bank backstop, inflation, stock valuations, retirement
Friday, 12 May 2023 01:29 PM
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