Hedge Funds, Central Banks Appear to be Preparing for a Crisis by Doing This

gold price

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From Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Why big investors might be preparing for a crisis by buying gold, gold is more than a safe-haven asset, and Poland repatriates 100 tons of gold from the Bank of England.

As prices pull back, Ray Dalio and central banks are pouring their money into gold

Gold prices have pulled back from their summer highs, yet the largest investors are hardly losing interest in the metal. Instead, the massive inflows into gold suggest that they might be preparing for a coming crisis that others could be sleeping on.

In a recent interview with Kitco, Phil Streible, senior market strategist of RJO Futures, said that gold still has a little room to go lower with major support at $1,425 before a possible strong bounce up to the $1,550 resistance level. Ray Dalio, a long-time advocate of long gold strategies and manager of the Bridgewater Associates fund, has made the most of these valuations by adding roughly $1 billion of put options on the S&P 500 Index. Having already made the fund largely gold-oriented and reaped the benefits as the world’s best-performing fund, Streible finds it interesting that Dalio and his team are making an even bigger bet on gold during times of minimal price action.

Another group that has been buying gold in spades have been central banks, which are on track to exceed 750 tons in total gold purchases by the end of the year after already posting an all-time high figure of 651 tons total in 2018. Streible thinks that a bid for safety is the primary driver behind these purchases in an era of global trade wars and currency issues.

Regarding currencies, Streible noted that the dollar has uncharacteristically pulled back alongside gold, which could be indicative of selling due to a loss of faith along with an unwillingness by investors to store their money in banks with low or negative yields. And although interest-rate dependent data has been keeping up so far, Streible added that market watchers should watch out for this week’s trade data report, which could come out as underwhelming.

How gold acts as much more than a simple haven asset

In a recent analysis on TheStreet, Scott Bauer went over some of the things regarding gold’s supply and demand dynamics that separate it from other assets and potentially spell exciting things for the gold market over the long term. On the face of it, investors tend to view gold as just another asset, one that is turned to as protection from all forms of uncertainty.

For others, however, gold can oftentimes act as one of the cornerstones of a country’s economy. To the top gold-producing countries, the yellow metal creates employment, attracts foreign investment and provides tax revenues. Past that, developments in regards to mine supply directly affect the price fluctuations in the gold market.

The basis of gold’s allure and the reason why it has acted as a gauge of value for millennia has been its scarcity, as it is known to have a finite supply within the Earth’s crust. Over the past few years, however, the supply picture has rapidly shifted and posed questions over the metal’s availability moving forward. Bauer notes that little has changed in terms of gold production since 2016 as he, like many other analysts, believes that all the easily-available gold has already been mined.

From here, producers face an increasing amount of obstacles as they have to dig deeper, in every sense of the term, to obtain gold. Some experts think that South Africa, a top producer of gold, could run out of accessible ore in the next 40 years. Others believe that, barring an unforeseen technological advancement, gold mining could become unsustainable as early as 2050. And while the possibility of the world running out of newly-mined gold offers the potential to redefine the metal’s value further down the line, the rising difficulties that miners are already facing could positively affect gold prices much sooner than expected.

Poland takes back 100 tons of its gold from the Bank of England’s vaults

In the past year, Poland has joined several other European countries that made a sudden entrance to the gold market with multi-ton bullion purchases. Poland’s appetite for gold has been especially notable, as the country purchased roughly 126 tons of bullion between 2018 and 2019.

According to the World Gold Council (WGC), central banks have been employing a gold-centric diversification strategy in a bid to both move away from the dollar and shield their economies from geopolitical turmoil. In Poland’s case, however, the country’s central bank has also decided to repatriate 100 tons of gold that were previously held in the vaults of the Bank of England.

With the gold bullion back within the nation’s borders, Poland now boasts a gold hoard of 228.6 tons, making it the 22nd-largest bullion holder in the world and the biggest holder on the eastern side of the European Union.

Speaking of the decision to bring the bullion back home, Poland’s central bank Governor Adam Glapinski said: “The gold symbolizes the strength of the country.” In a statement given to reporters, Glapinski also revealed that Poland has no plans to part with any of its bullion but is open to the prospect of further gold acquisitions. As multiple reports by the WGC have pointed out, the exponential rise in gold purchases from the official sector have brought overall gold demand to a three-year high.

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