The Gold Rush is Back!

Recession fears are once again driving interest in gold , just recently the market reached a six-year price peak after news broke that the Fed is considering cutting interest rates. The combination of dovish central banks, continued trade tensions, falling yields, geopolitical tensions and central-bank buying poses further upside risk to prices. A leading Wall Street research firm is actively pointing investors toward gold and gold mining stocks in order to reduce risk. In a note entitled, “A Strong Case for Holding Gold,” widely recognized research and brokerage firm, Bernstein Research, advocates an urgent focus on the precious metal and its producers. The World Gold Council (WGC) says gold spending by central banks has reached a three year high. Central bank gold reserves grew 148.4 tons in Q3 , up 22% Year-Over-Year . This is the highest level of net purchases since 2015, both quarterly and year-to-date, and notable due to a greater number of buyers. Using the current spot price of $1,416 per troy ounce, the gold purchases by the banks added up to a $6.74 billion spending splurge on the precious metal. This gold mania will be riding the wave of an incredibly powerful trend , the re-monetization of gold. The last time the international monetary system experienced a paradigm shift of this magnitude was in 1971. Then, the dollar price of gold skyrocketed over 2,300%. It shot from $35 per ounce to a high of $850 in 1980. Countries and Central Banks Are Buying Record Amounts of Gold , with Russia as the Biggest Buyer . Russia’s gold reserves have quadrupled in the last decade, making it the fifth-largest holder of gold in the world. Last year, Russia notably dumped nearly $100 billion worth of U.S. Treasuries, and, according to the World Gold Council, replaced much of it with gold. If this trend continues, and I expect that it will, Russia will soon become the third-largest gold holder in the world. There is no debate among central bankers whether gold is money or not. Gold always has been and always will be money in its purest form. It does not degrade, it is sufficiently scarce, universally accepted, and is easily divisible into practical units. The foremost quality however is that it bears no counterparty risk. In financial language, it is unencumbered. This quality ensures it will remain the ultimate insurance for wealth preservation. As such, there is not a reputable central bank in the world that does not hold the asset on its balance sheet with one notable exception – Canada. According to the World Gold Council, China’s official reserves as of December 2016 sit at 1,842.6 metric tonnes. It is well established that this does not reflect China’s true gold holdings. The statistics for Chinese gold reserves did not update monthly until June 2016. After the great financial crisis, China’s gold holdings suddenly surged and then remained unchanged until mid 2016. Gold is steadily reclaiming its title as “ultimate asset”, which means it rises in good times and bad. If global stock markets rise, gold rises. If global stock markets crash, gold rises. Owning gold is now the “ultimate no-brainer” tactic for central banks and heavyweight bank analysts.






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