During these turbulent times, how can the price of gold remain almost constant?
It’s been like this for over a year now. Actually, the price of gold isn’t much different today from what it was 5 years ago… with a few ups and downs along the way.
At first sight, it makes absolutely no sense.
With so much uncertainty around the world… both economically and politically… you’d expect to see gold prices rise dramatically.
Unless…
Unless powerful forces that would ordinarily push the gold price up are being counterbalanced by opposing forces that are holding the price down.
And that, I believe, is exactly what we’re seeing.
First, let’s look at what’s holding gold prices down.
Probably the biggest factor here is that we’re still in a bull market. Incredible, but true. It’s a bull market that just won’t quit.
And if there’s money to be made on the stock market, that’s where the money will flow. It’s flowing into Wall Street and not into gold.
For as long as the bull market endures, there will be downward pressure on gold prices.
So… what’s the countervailing influence?
What’s keeping the price of gold bullion steady, and preventing prices from falling?
Well… there are some players out there who are taking a longer view, and are planning further ahead than the next quarter. They’re playing the long game at a global level.
The big buyers of gold right now are not the world’s investors. They’re the world’s Central Banks.
According to the World Gold Council, demand to buy gold by central banks totaled over 651 tonnes in 2018.
That represented a 75% rise in central-bank gold buying.
Demand from investors is down. Demand from jewelers and retail buyers is down.
But the world’s central banks are buying gold bullion by the truckload. Literally.
As a group – led by Russia, China, and a group of emerging-market countries – they’re been buying gold bars at the fastest pace since the 1960s.
How come?
My best guess is that they’re relying on gold to do what gold does best. They are buying it as insurance against an uncertain future.
They see an increasingly turbulent world losing its way. They see global debt levels reaching new and dizzying heights. They know that the west’s bull market cannot continue indefinitely.
Another incentive for nation states to buy more gold is that it puts at least a little of their wealth outside US control through the global Dollar clearing system.
What does this mean for the likes of you and me?
For me, owning gold is a long game. I’m not a trader, I’m a holder.
And for the most part, I model my own strategy on the actions of the very big players, like Central Banks.
I share their concerns about the future.
And I have no reason to doubt that strategy right now.
Which is why 2018 was a year in which I purchased more gold. And I’ll likely be doing the same this year too.
Further reading:
6 Good reasons to own gold coins or gold bars.
Storing gold – at home, in a safety deposit box, or with your dealer.