By Samuel Bryan
These are not normal economic times.
Interest rates have remained artificially low, plunging into negative territory in many places. Central banks continue to inflate the money supply with quantitative easing. Some policymakers have even floated the idea of helicopter money. Worldwide money printing is reportedly approaching $100 trillion.
There is no end to this crazy monetary policy in sight. This led billionaire investor Stanley Druckenmiller to recommend selling US stocks to buy gold. Well-known hedge fund manager Paul Singer said the recent surge in gold is just the beginning. And Bank of America said gold is entering a new and long bull market.
Ironically, their own policies are driving some central bankers to do what they generally scorn - buy gold. In fact, many central banks are piling into the yellow metal.
Overall demand for gold continues to surge, hitting 1,290 tons in the first quarter of this year. It was the second-largest quarterly demand spike on record. Investors have led the charge. According to data gathered by Bloomberg, holdings of the yellow metal in exchange-traded funds have increased to 1,823.3 tons, the most since December 2013. In just the past two week, ETF gold holdings swelled 63.2 tons.
As Bloomberg put it, investors are buying gold due to "rising concern about central bank policy-making worldwide." Bernard Aw, a strategist at IG Asia Pte, also pointed to central bank policies as a prime driver of the surging gold market.
Firstly, the negative interest rate environment and quantitative-easing policies are reducing the pool of suitable investment options, and making gold less costly to hold. Second, lingering fears of competitive currency devaluations and potentially fresh bouts of market volatility encourage safe-haven demand."
Even while continuing to implement policies driving gold demand skyward, central banks themselves are buying gold, with China, Russia, and Kazakhstan leading the pack. According to the World Gold Council, central banks added 109 tons to their reserves in the first quarter of this year. It was the 21st consecutive month central banks have been net purchasers of gold. Central banks accounted for about 14% of the world's gold demand last year. Gold purchases by central banks have moved from less than 2% of world demand for gold in 2009 to over 14% in 2015.
World Gold Council analysts said they expect banks to accumulate another 400-600 tons of gold in 2016 as they continue to diversify away from the US dollar. Capital Economics researchers explained it this way:
The primary driver of central banks' gold buying continues to be diversification away from the US dollar with some also looking for a hedge against currency volatility more generally. Indeed, historically gold is negatively correlated with the US dollar, the main asset held by central banks across the world, making it an effective hedge against future dollar weakness. What's more, gold tends to have little or no correlation to other traditional or alternative reserve assets, like government bonds."
The Daily Bell provides some interesting analysis on this central bank gold hoarding trend, especially considering the countries most aggressively accumulating the yellow metal. As they put it, "now is not a normal time."
Ordinarily central banks are more apt to shed gold than buy it. The Canadian central bank has recently sold all its reserves. But now is not a normal time. We've argued that the world's financial controllers, the bankers and globalists, have embarked on an aggressive campaign to create a new, international currency. As part of this strategy, they are raising the value of the non-dollar currencies. Eventually, the dollar itself may be lose serious value on the world's markets. As currencies grow more unstable, central banks will seek a 'bridge' that holds value in the midst of currency volatility. That bridge seems to be gold."
Central bankers won't be the only ones to feel the impact of a devaluing dollar and economic instability. That's why everyday investors are buying gold. That's why you should too.