The world’s central banks have been hoarding gold for more than a year, and they’re still banking the yellow metal.
According to the World Gold Council, central banks gobbled-up 337 metric tons of gold in the third quarter. That adds to the 387t that had been purchased in the first half of 2023. At this rate, we’re going to see more gold purchased in 2023 than last year.
There are a bunch of reasons why we’re seeing this action adding up to a rare win-win for gold prices.
First, the Fed’s interest rate shift.
Typically, a decrease in interest rates tends to make the dollar weaker. The weaker dollar favors higher prices on gold as people look for a “hedge.”
With the market all but guaranteeing a drop in interest rates the only sure thing out there – besides buying stocks – is to buy gold.
What if we hit a recession?
Gold loves a recession, or at least it likes them.
Commodity prices go down in a recession as demand drops from lower production.
That’s why people refer to copper as “Dr. Copper” - it’s got a PhD in economics because lower demand usually precedes recessions.
Gold, on the other hand, sees more demand during recessions as investors look for “safe harbor” assets.
Third, and the juiciest, the U.S. standing as the world currency.
Just today, Russia and Iran declared that they have ditched the dollar for trade. This piles on to the move that Russia and China have made to do the same. Last week, it was announced that more than 90% of their trade is done in the yuan or ruble.
Hedge Fund Pioneer Ray Dalio’s last book, Principles for Dealing with the Changing World Order, details the rise and fall of the world’s superpower economies. It’s a great read and details one of the reasons that central banks are buying gold and the likelihood that the dollar’s decline has much further to go.
Bottom Line: Gold and the SPDR Gold Shares (GLD) are cracking new highs again, and this is one trend that is going to gain steam in 2024. Follow the world’s lead here and make sure you’ve diversified with gold.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.