Why are Central Banks Buying So Much Gold Now?

The fiat Federal Reserve raised rates as expected in the middle of this past week but at a slower pace hiking them +25 basis points or +1/4th of one percent. 

Chairman Jerome Powell said he expects two more 25 basis point rate hikes to come, citing his typical data-dependent opt-out clause.

The monetary precious metal spot prices rallied on the news. 

I took to a quick Twitter poll to check my bullion-interested follower's sentiment posing the following question.

In a highly leveraged derivative gold price discovery market, staying grounded and aware of risks is often a difficult but required task to maintain one's well being and emotional sanity.

For the vast majority of you who may have answered my quick poll there, the majority expectation was that gold's eventual consistent move to new nominal record price highs denominated in fiat Federal Reserve notes would come later.

So surprise, not surprised. This morning Friday, Feb 3rd, 2023, the same US agency that consistently underreports ongoing price inflation data by half or more made a near all-time record size seasonal adjustment to their Non-Farm Payroll Data report.

That was all the excuse required to get algorithmic price selloffs in spot gold and silver.

So while perhaps it is a bit of short-term lousy news for many of us, the seemingly eternally patient bullion-owning crowd. 

The good news is that the physical bullion industry here in the USA has higher levels of inventory and slimmer price premiums closer to consolidating spot prices. For those still acquiring prudent bullion positions, now might be an excellent time to add to one's position.

The silver and gold markets rallied on the fiat Federal Reserves soft rate rise of 25 basis points midweek. Only to be sold off with final spot price washouts coming from this Friday morning's phony BLS non-farm payroll data. 

The spot silver price closed the week under the $22.50 oz bid, while the spot gold price ended just under a $1,870.00 oz bid.

The spot gold-silver ratio briefly pierced below 80 only to climb to close the week ending at 83.

This past week, the essential bit of silver and gold-related news remains the World Gold Council's curious ongoing admittance and recent Q4 2022 update that government central bank gold buying is reaching annual levels not seen since 1967.

It's not so much the incredible data they are reporting that I am so focused on. More so for me, a question of, why now? 

That has been going on and consistently under-reported since the 2008 Global Financial Crisis, clued central banks that the current fiat Federal Reserve note-dominated monetary system is highly unstable.

The amount of government gold buying volumes has not been consistently this high and hard.

It is the most significant collective central bank gold accumulation movement since World War 2 and the Bretton Woods agreement era.

Even the IMF openly admits that central banks are increasingly buying gold bullion for their balance sheet reserves. Doing this instead of owning underperforming fiat currency-denominated bonds or IOUs or from holding devaluing fiat reserve currency notes like the fiat US dollar, euro, yen, or pound not sterling silver anymore.

In the last 22 years, based only on voluntary sovereign government admittances, the east has been stacking official gold bullion, and the west has been net sellers, as displayed in the link above.

Having posted this incredible chart, most precious metals interested onlookers need to be made aware of the timeline and history of gold. Not their fault; this stuff is self-taught, and I work in this industry. So when asked what that massive spike from 1967 represents?

Well, that was the last year before the London Gold Price Rigging Pool collapsed, so it represents a mad rush by trade surplus governments converting over-printed US dollars for gold bullion reserves at the time. 

From 1968, just a month and a dozen years that followed, the gold spot price in fiat US dollar terms 24X folded from a failed price rig of $35 ox to a high above $850 oz on Jan 21st, 1980.

Even in a highly leveraged market such as 1980, the spot price of gold can still run away from supposed authorities and nearly break the system.

In 1982, the CIA reported the following (page 4) about the then-1980 gold market leverage.

Ten years ago, in 2013, the central bank of India (page 99/83) admitted that the then physical gold versus outsized paper derivative gold market was trading at over 92 times leverage.

The situation is even more highly leveraged today in 2023. That leverage, when it comes undone typically does so in an opposite and violent reaction in the other direction. And price discovery leverage using seemingly limitless derivatives can certainly be handy in price rigging markets until it isn't.

But do not take my word for it. That statement about leverage backfiring into a runaway gold bull in US history has often multifold the spot price in short order numerous times (e.g., 1869, 1933, 1980).

What I will leave you with to close this week is a reminder of what the Financial Times would wait to dare tell their readers. 

If you have been following our channel, you might recall on July 4th, 2022, a longtime City of London gold and precious metals trader publicly admitted to the world that the day-to-day gold spot price we have been living under since the early 1980s is an utter sham.

A canard, if you will, something to avoid getting fooled by.

I will link to that vital video reading Peter Hambro’s real-life experience working in our phony gold price discovery world, likely ending in a new set of rules.

That important video is entitled:

Longtime London Gold Trader: Precious Metals Markets are Paper Derivative Shams

I will link those important admissions above.

That will be all for this week's SD Bullion Market Update.

As always, to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

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 & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...