Global Central Bank Buying Puts A Floor Under The Price of Gold
The only reason the price of gold’s down on the year is because of a strong dollar.
Actually – for how much the dollar’s rallied this year, gold holding around the $1,200 range is very bullish.
And if gold’s been able to hold its own during a stronger dollar and aggressive Federal Reserve tightening – imagine what it will do once they decide to begin easing. . .
Putting it simply – the price will soar. . .
So, who’s taking advantage of this weaker gold price?
The Global Central banks – but specifically the Emerging Markets.
Here is the latest data showing the Q2/2018 Central Bank gold reserves.
This comes after Central Banks added 116.5 tons to their ‘official’ reserves in Q1/2018. This was the highest first quarter increase over the last four years.
It’s widely known that in the 1990’s and first decade of the new millennium – Central Bank’s were dumping their gold.
Starting in the late 1980’s, gold reserves in Central Bank vaults declined from roughly 36,000 to just under 30,000. That’s a huge drop.
To be clear, they didn’t just sell the gold. The Central Banks also engaged in the ‘gold carry trade’.
This is when Central Banks ‘lease’ their gold reserves to investment banks for a set amount of time and a bit of interest.
The investment banks then sell that gold in to the market – get dollars in return – and buy bonds or equities.
After a while, they take the profits and buy the gold back – returning it to the Central Banks.
You can see how lucrative this trade is. And how it incentivizes the investment banks to keep the gold price down (since they have to buy back the gold later to return it to the Central Banks).
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