Gold Glitters More And More
Summary
- Central banks are buying gold.
- Gold is still inexpensive.
- Gold is a hedge against inflation.
Central Bank Gold Purchases qz.com Oselote
Central Banks
Acquisitions of physical gold by central banks rose over the last year.
Central Bank Gold Purchases (gz.com)
With central banks buying so much physical gold, investors should ask themselves why there is so much interest in the yellow metal on the part of the people that should know what they are doing in the financial world. It might be the case that retail investors should follow the example of the big bankers.
It is the case that there is a lot of inflation in the US and elsewhere. The Fed is trying to bring down inflation by raising basic interest rates, which are now about 5%. This has brought about bank failures and a tightening of liquidity while at the same time the Fed has resorted to a new QE to stem the panic associated with bank failures. The Fed does not seem to be buying gold while the Chinese, Russians and other assorted nations have been gobbling up what is available at a price that can be considered cheap.
Cheap Gold
A price that is under $2,000 an ounce can be considered inexpensive at the present time, One has to keep in mind that the “big boys” have managed to manipulate the gold price in order to keep it low. The point of the exercise is to reinforce fiat currencies. If the price of gold skyrockets, that would be bad for trust in fiat currencies, especially the US Dollar.
It is not clear at the present time what the PBoC is planning in connection with CBDC (Central Bank Digital Currency) and gold. This author is not privy to the deliberations of the directors of the PBoC. It seems, however, that there may be some sort of agreement between the Gulf countries and the Chinese in connection with the petrodollar, the petroyuan and gold. The Chinese have set up exchanges for gold and oil that are based on yuan contracts, and these exchanges have begun to gain traction.
Gold as a Hedge
With inflation still raging in the US and the US Dollar under siege, it behooves investors to have a part of their portfolio in physical gold. This does not mean that gold mining shares are not interesting. They are still available at a discount, but bullion will benefit most when the gold price increases rapidly. Most investors do not have any physical gold in their portfolios. Gold bullion carries with it expenses related to transportation, storage and security. That is why many investors prefer ETFs. These instruments could come under pressure if there is a run on physical gold.
Under usual circumstances, gold holdings could make up 5% to 10% of a portfolio. In consideration of the geopolitical turmoil at the present time, it could be advisable to increase holdings in physical gold. The war in Ukraine is still ongoing. NATO is expanding and putting more pressure on Russia along with the EU. China and Russia seem to be getting closer together. China is making inroads in Africa, the Middle East and South America. The question of Taiwan remains open. The US has been imposing sanctions on several countries, like Iran, North Korea, Russia and Syria, among others. Under such conditions gold is a reasonable hedge against unforeseen events. The price of gold is likely to increase significantly relatively soon.
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