Central Banks’ Record Gold Stockpiling
The comments below are an edited and abridged synopsis of an article by Claudio Grass
As of September, the total amount of gold held by central banks globally exceeded 36,000 tons for the first time since 1990. This 31-year record was the result of central banks adding more that 4,500 tons of gold to their holdings over the last decade, supporting the investment case for gold in performance terms and from a big picture perspective.
This record was barely reported in the mainstream media and official central bank statements. To the contrary, policymakers in the US, the Eurozone and other major economies have for over two years insisted on repeating the same talking points and all kinds of arguments and convictions that would nullify the case for holding gold at all.
For example, until recently, inflation was dismissed as transitory, with the Fed and the ECB saying that consumer prices were under control. As pressure continued to build and it became clear that the CPI figures were not aligned with the Fed’s version of reality, it had to perform a policy U-turn. Of course, if the banks’ public statements were consistent with their policymaking, there would be no reason to ratchet up their gold stockpiling.
There is also a long-term shift that the gold-buying spree highlights: The reign of the US dollar as the world’s reserve currency is ending. The dollar’s value has seen a remarkable decline against gold over the last decade and it’s not just precious metals investors that are watching this trend. Reinforced by solid geopolitical reasons, central bankers in Russia, China and other nations have been pushing for years to dethrone the dollar.
An important milestone: Last year, Russia’s central bank gold holdings surpassed its dollar reserves for the first time in its history, with gold making up 23% of total reserves as of the end of June and dollar assets dropping to 22%.
Other nations have been accelerating their gold buying and shedding their dollar reserves. In the first nine months of 2021, Thailand added around 90 tons, India 70 tons and Brazil 60 tons. The presence of the dollar in foreign exchange reserves is falling, in contrast with gold. In 2020, the currency-by-currency ratio of the dollar fell to the lowest level in 25 years.
Investors must pay attention to this shift. As central bankers know, as fiat currency debasement continues or accelerates in the coming months, physical gold will provide the only reliable and time-tested haven from the storm that lies ahead.