Central Banks Are Buying the Gold Top

In investing, “Buy low, sell high” is among the most well-known sayings, and generally, it’s good advice. But with gold still holding near its historic all-time highs, central banks led by China are bucking the classic adage and smash-buying more, buying the top to fortify themselves against a global monetary and financial blow-up.

Last month marked the 17th in a row that the People’s Bank of China (PBOC) continued stacking gold. Notably, the bank typically reports lower numbers than its actual buying volume and is now also introducing a digital yuan to facilitate cross-border gold settlements.

Russia is also doubling its reserves of gold and foreign currencies on its de-dollarization path, further detaching Russia from the petrodollar empire as it reacts to wartime sanctions from the US and EU. There are other blips on the de-dollarization map as well: though much smaller than Russia and China, Zimbabwe has a new gold-backed currency that lets them dump the USD for trade with China and other countries.

Chinese citizens are trying to divest as well, but from their economy — Chinese buying has become so blistering that gold ETFs have gone haywire, with China repeatedly halting trading as ETFs rocket upward at a gobsmackingly-high premium against physical bullion. It has become increasingly difficult for the Chinese to invest outside of China, due to attempts by the regime to keep investments within the country. Citizens are trying to make moves to protect themselves against their perceptions of domestic economic uncertainty.

Meanwhile, expectations that the Fed and other Western central banks will be cutting rates this year amidst continuing wars in Ukraine and the Middle East provide further rocket fuel for the gold price, with central bank buying helping it hold its new levels despite whatever else seems to be going on in global markets.

A Year of Central Bank Buying: Gold vs USD April 2023 – April 2024

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