Why Central Banks Are Stockpiling Gold

Central Banks Are Stockpiling Gold
by: Ben Tseytlin - on Gold & Bullion

Gold has showcased impressive growth this year, with many experts attributing it to uncertainty involving the stability of international markets. Equities have been choppy, which also supports a bullish environment for gold. However, the decision by many central banks to hoard gold gives an even stronger indication of where the market is headed.

Why Central Banks Aren’t Selling Much Gold

Central banks, especially those in the European Union, have begun stockpiling gold, selling little or none. Many believe this is due to concerns about potential financial hardship that could impact the region. Germany is the main country whose central banks are hoarding gold, with almost 3,400 tons in reserve. According to the WGC, or World Gold Council, the German central banks haven’t sold any gold since June of 2015. This is notable because the Germans usually sell around five tons per year to citizens, international buyers and other Europeans. Additionally, the Germans have begun repatriating their gold coins which have been maintained in places such as New York and Paris for decades.

That Germany would discontinue selling gold while repatriating its international bullion holdings is a clear sign that the nation is constructing a defensive shield around its economy. This has not gone unnoticed by other nations in the Eurozone, and has caused a significant drop in gold sales through reserve managers in Western Europe. Historically, it should be noted that many of the Central Banks in Europe also discontinued gold sales before the 2008 financial crisis, and further back in 1988.

Russian And Chinese Central Banks

Aside from the Germans, the Russians and Chinese are also beginning to stockpile gold. The IMF (International Monetary Fund) recently revealed that both Kazakhstan and Russia initiated a frenzy of gold purchases in February, while Russia’s central bank amassed over 11 tons of gold, bringing its complete reserves to 1447 tons. The Russians have been purchasing gold quietly, acquiring over 200 gold tons in 2015, which is an increase over the amount they purchased the year before. At the same time the Russians acquire gold, they are also selling their holdings of American treasury debts.

Like the Russians, the Chinese have been rapidly amassing gold. A report from the WGC shows that China boosted its gold reserves by over fifty percent since 2009, immediately following the global crash. Between 2015 and 2016, China further raised its gold holdings by over 100 tons. A lot of experts have stated that there is a strong possibility that the actual gold reserves held by the Chinese are much higher than the numbers which are officially reported. The reason for this could be that the Chinese do not want to spook the market, which of course would make the price of both gold and other precious metals spike rapidly.

What Does This All Mean?

The central banks worldwide are stockpiling gold because they do not trust the financial markets and due to the record debt levels maintained by nations worldwide are acquiring gold as insurance to protect themselves. Therefore, the message to individual investors is that they should be doing the same.