4 Reasons Why Central Banks Are Rapidly Buying Gold

central banks buying gold

From Birch Gold Group

According to official data provided by the World Gold Council, Central Banks are buying up gold fast.

In fact, gold purchases by Central Banks and other institutions increased a whopping 68% year-over-year from Q1 2018. You can see the increase in the chart below:

central banks gold purchases

The last time gold was bought at this pace was in 2011, when prices were expected to shoot up dramatically to almost $2,000 an ounce according to a Guardian article from that year:

Gold breached $1,500 an ounce for the first time on Wednesday and is expected to hit $2,000 by the end of next year as a perfect storm of concerns about inflation, debt, the US dollar and unrest in the Middle East pushes up precious metals.

Eerily enough, a similar “perfect storm” of inflation, record debt, weakening of the U.S. dollar, and trade unrest in China may be forming right now. Of course, it remains to be seen if this “storm” will form like it did in 2011, but the signs are there.

Here are the “storm ingredients” that could be contributing to this gold-buying frenzy.

Inflation on the Rise Again

Setting aside the “real” inflation rate of almost 6% reported at ShadowStats, the official 12-month unadjusted CPI is back on the rise at 2.0%. (See chart below):

inflation cpi

The chart above also reveals that CPI inflation has been on the rise since 2015. So in spite of the Fed’s attempts to “control” inflation, it may run hot as Powell alluded to back in March.

Debt, Debt, and More Debt

Corporate debt is nearing $6.5 trillion according to official sources, and as we’ve pointed out before, a good portion of it is junk. Total U.S. consumer debt outstanding also continues to rise. It’s currently just over $4 trillion.

But the big one, U.S. Government debt, continues to top $22 trillion despite being mitigated slightly by revenue since February. According to Sovereign Man, the Congressional Budget Office forecasts that the U.S. will never see an annual budget deficit of less than $1 trillion after 2021.

In response, foreign creditors are shifting out of U.S. debt in fear that they won’t be paid back at a rate they would like.

The U.S. Dollar Continues to Weaken

The dollar is losing its foothold as the Global Reserve Currency, losing steam since 2001 and getting eerily close to 1991 levels of 46%, according to Wolf Richter.

global official reserves

The current mark of 61% is the lowest since 2013, as you can see in the chart above. Some experts are holding a bearish outlook for 2019.

And of Course … Trade War Concerns in China

The ongoing trade war discussions in China, along with various tariffs issued, has caused tension in the markets for the last year. And that tension hasn’t stopped, as “European equities and U.S. futures fell Wednesday,” according to Business Insider.

The same recent tension deepened even further upon reported threats of Beijing “looking into dumping U.S. Treasuries” in another Business Insider piece. If China were to use any kind of “nuclear option” … the resulting panic could be devastating.

The World Gold Council (WGC) seems to agree, identifying trade tensions as one reason among many why Central Banks are buying up so much gold.

And regardless of whether this “perfect storm” for buying gold comes together, the WGC is buying the precious metal fast.

Assess Your Retirement Situation Now

Now knowing why central banks and other countries are buying gold at rapid rates, it may be time to consider whether you should follow their lead.

It’s not only central banks who can use gold to their advantage. Adding gold to a diversified portfolio can help you add security to your current retirement plan, and protect you from these four “storm ingredients”.

Whatever you choose to do, remember that the time to make a decision like this is before the storm hits.

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