Official Government Gold Holdings at 31 Year High

Another year has come and gone. But before we look ahead to 2022, let’s examine where the major precious metals markets are closing this year 2021.

We're about to examine some of the bigger picture, fundamental bullish factors building for bullion in the years to come.

Silver and gold spot prices have rallied slightly in this year's final week of trading. Currently, the spot silver price is trading over $23 oz, and gold is nearly $1,820 oz, with the Gold-Silver Ratio down to 78. I am recording this year’s last SD Bullion market update just before the New York COMEX begins trading.

In the larger picture, here is the gold price chart covering this over fifty-year full fiat currency era. You can see this past year's price consolidation in a longer-term context.

This past week, the Tokyo Nikkei newspaper reminded its readers of the bigger picture context for gold in an article entitled, "Central Banks Accelerate Shift from Dollar to Gold Worldwide." Official government gold holdings are now at 31 years high levels.

Central banks worldwide are increasing the gold they hold in foreign exchange reserves, bringing the total to an over three decades high level in 2021.

A chart illustrates how central banks have built their gold reserves by more than 5,5000 metric tons, adding around 177 million ounces of Official Gold Bullion holdings since the 2008 global financial crisis.

This is not by mere coincidence. Central banks know that gold bullion is the ultimate backstop of the monetary and financial system. And even with current systematic price discovery suppressed gold values, gold already makes up over 13% of the world's official international reserves. Only the fiat euro and fiat US dollar at the moment have larger allocations held.

In 2020, the currency-by-currency ratio of the fiat US dollar fell to its lowest level over the last 25 years.

The article goes on to state, "The declining presence of the dollar is partly attributable to long-term falls in the value of the currency vis-a-vis gold. Since U.S. President Richard Nixon announced a decision in 1971 to end the dollar's convertibility to gold, the currency's value has fallen to roughly one-fiftieth of its former level because the U.S. supply of dollars, unshackled from gold, has increased some 30 times over the past 50 years."

Dependingworld’s on which fiat US dollar M1, M2, or M3 supply aggregate one uses, from 1970 until now ending in 2021, the amount of fiat US dollars in the financial system has gone up from 100 to 40 times where it was fifty-one years ago.

In this decade’s larger picture, the fundamental drivers for higher gold values look very sound as we head into 2022.

We are turning now to the silver market.

The spot silver price has been throughout this entire fiat currency era.

Remember how I just told you the amount of fiat US dollars in the financial system is up anywhere from 40 to 100 times over the last fifty-one years?

Meanwhile, you can see here the silver spot price has only risen just over tenfold over the last five decades and one year. At the same time, the gold spot price has already increased over fiftyfold since 1970. And historically, during bullion bull market manias, silver often outperforms gold for brief timeframes.

And by both central bank and investor actions over the last roughly 24 months. The world has witnessed a strong building belief that silver bullion is perhaps the most undervalued asset one can own at the moment. 

Both record-sized investment and industrial demand are bolstering the case for rising silver values in the years to come.

This past week, the Silver Institute published estimates showing that silver's total for overall demand in 2021 will be a record at just over one billion ounces.

With a six-year high in physical silver bullion investment taking over one-quarter of that demand. At the same time, unsecured silver ETF holdings will increase 150 million oz after 2020's record 331 million ounces equivalent inflow.

Industrial demand for silver also hit a record of 524 million oz as silver use in electronics and solar panels increased double digits in percentage terms.

This year we also saw the beginning of the Reddit Wall Street Silver phenomenon, which kicked off at the end of January 2021. Since that date, the has seen nearly 70 million ounces of silver drain from registered COMEX silver piles, much of which has gone into retail bullion products for long-term silver investor holdings.

From zero to over 175,000 Reddit users, this growing phenomenon of new silver bullion buyers came out of seemingly nowhere and has grown the number of investors learning the bullish case for silver in the coming years. 

It will be interesting to see how much silver investor demand grows given the internet's ability to increase investor inflows into the sector virally and perhaps momentum betting eventually feeding on itself to rampant silver spot price upsides ahead.

That is all for this final SD Bullion Market Update to end 2021. 

Once again, we here at SDBullion.com want to wish you and yours a happy, prosperous New Year. And as always, take great care of yourselves and those you love.

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James Anderson
James Anderson
Content Director

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold

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