The nations in around Russia and China have been on gold acquiring spree lately. Some have been following the lead of these two nations for many years, but now we see increased activity on a broader scale. If the pace continues we could see cumulative gold acquisitions challenging the 600 ton level – very ambition – which hasn’t happened since 2015. National banks haven’t net buyers of physical gold since 2013. That is going to change this year and now becomes a question of what’s the next line the sand to fall.
Many of the smaller central banks (which is a new phrase), and a couple of the larger ones, around the world have decided that gold should be acquired. Those of you that have been following our work know we have been reporting on Kazakistan, Russia and China for some time. China dropped out in October 2016 and hasn’t added one single ounce of official gold – which is what we are reporting on, official gold – to their holdings. Russia has increased their acquisitions, Kazakistan has been slowly increasing the volume of their acquisitions and now we have Hungary increase their holdings by 1,000% in one month. Poland jumped on board and the national bank in Kyrgyzstan has changed their banking policies and have been encouraging the citizens to acquire, and more importantly use, gold. The goal of the Kyrgyzstan national bank is 100 grams, (just over 3 ounces) of physical gold per person!!
Now we see all these acquisitions have created a cumulative gain for 2018. The first time there has been an upswing in gold acquisitions since 2013. It seems Hungary’s acquiring of almost 32 tons of gold in a 2 week period tipped the scale.
Central Banks to Increase Gold Buying for First Time Since 2013
Central banks are set to increase their purchases of gold in 2018 for the first time in five years as eastern European and Asian countries seek to diversify their reserves.
Net purchases of gold by central banks are forecast to rise to 450 metric tons this year, up from 375 tons in 2017, according to consultancy Metals Focus Ltd. That will be the first increase since 2013, when banks boosted their holdings by 646 tons, the most for several decades.
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“Official sector purchases are likely to remain healthy, as a result of ongoing efforts to diversify reserves among emerging market countries,” Liang said in a weekly note. “Indeed, in spite of purchases by a number of central banks in recent years, the share of total reserves that their gold holdings account for remains arguably low, especially when compared to that seen across western countries.”
Allow me to interpret that last paragraph and put it easy to understand language. The nations I listed at the beginning of this article are moving away from the Federal Reserve Note (FRN), U.S. dollar, and are beefing up their gold holdings to counter the debt / problems created by the dollar. The purpose is to abandon the FRN and use another currency for global trade settlement, probably anchored with a small amount of gold.
When the cumulative acquisitions begin to rival 2013, or move even higher, we should see a handful more national banks acquiring gold for the purpose I just outlined. What Bloomberg fails to ever mention is the Belt and Road Initiative, which is 11 times larger than the Marshall Plan, and has already discussed, officially, gold being part of the trade settlement between nations. This plays a part in the overall reasoning for these nations to acquire gold it is unclear how large part does it play at this point. We will find out within the next few years as we are on record for 2025 being a milestone for change. I am not saying the “dollar is going to collapse” or go poof in the night, it could but it is more likely that enough nations will simply stop using the FRN for trade settlement that the problems that will cause be sufficient for major changes to global trade settlement.
