The fact that equities have been operating in a choppy market in the year-to-date has also provided bullish tailwinds for gold. As you can see in the chart below, gold has been on a predominantly northbound ascent since the markets opened for trading this year.
Despite the uptrend in gold prices and the fact that gold investors have banked about 17% gains, some bears are still skeptical about the bullish outlook of gold. If you are one of the bears that are skeptical about the bright prospects of gold, it might interest you to know central banks all over the world know that the world is sitting on an economic keg of gunpowder.
Some central bankers have stared hoarding gold and others are buying up all the gold they could find in preparation for an impending economic doom.
Central Banks have stopped selling gold
Latest news from the global economic markets indicates that central Banks in Europe have started to hoard gold as the fears of upcoming economic hardship grips the Eurozone. Germany is leading the move by central banks to hoard gold with its recent decision to stop selling gold. Germany holds the second position (behind USA) on the list of countries with gold reserves – the country has more than 3,380 tons of gold in its reserves.
The World Gold Council reports that Germany has not sold an ounce of gold since June 2015. In the years past, Germany typically sells about 5 tons of gold every year to mint commemorative coins sold to Germans, Europeans, and other buyers globally. More so, Germany has started repatriating all its gold hoards that have been kept in Paris and New York for many years.
The fact that Germany has stopped selling gold and that it is bringing its bullion that has been stored in other countries back home suggests that the country is trying to build a protective moat around its gold. Germany’s new protective actions towards its gold holdings has raised concerns among other countries in the EU and gold sales by Western European reserve managers has dropped to zero in the last nine months.
The last time gold sales dropped to zero from more than 9 months was in 1988. In addition, it is on record that European Central banks stopped selling gold when the global financial crisis of 2008 broke out. The fact that European central banks have stopped selling gold in the last 9 months might be indicative of a financial crisis on the horizon – this might be the best time to start buying gold.
China and Russia are Hoarding Gold
Another piece of news that lends credence to the possibility of an impending financial crisis is that China and Russia have started piling up gold on their reserves. The International Monetary Fund revealed that both Russia and Kazakhstan have taken up a gold buying frenzy since February. It was reported that the Central Bank of Russia has bought 11.1 tons of gold to bring its total gold reserves to 1,447 tones.
Russia has been on a quiet buying spree to increase its gold reserves for about one year now. In 2015, Russia bought a record 208 tons of gold compared to the 172 tons of gold that it bought in 2014. In January 2016, Moscow bought 22 tons of gold for about $800M at the current exchange rates. The fact that Russia is on a buying spree for gold while selling its holdings in U.S. Treasury debts suggests that an economic cold war might be on the horizon.
China has also been on a gold-buying frenzy that shows how much faith central banks have in the bullion over other asset classes. The World Gold Council reports that China’s gold reserves have increased by more than 57% since 2009 soon after the global financial meltdown. From August 2015 to January 2016, China increased its gold reserves by an additional 101 tons. Beijing bought 17 tons of gold in January and it has plans to buy about 215 tons of gold in 2016.
Interestingly, analysts believe that China’s gold reserves are significantly higher than the officially reported numbers. It only makes sense that China would be buying up gold quietly in order not to ring alarm bells, spook the markets, and cause the price of gold to rise drastically.