Gold Now Has Major Institutional Support

The comments below are an edited and abridged synopsis of an article by Cliff Droke

The rise of official institutional involvement in the gold market, mainly in the form of central bank demand, will be a key factor behind gold’s continued recovery in 2019. That assessment is now shared by a growing number of respected analysts and investors.

Gold Now Has Major Institutional Support | BMG
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A big support for the yellow metal has been the increase in central bank activity in the gold market. In 2018, central banks added the most to their gold reserves in over 50 years. China’s central bank increased its gold reserves to 60.62 million ounces in March from 60.26 million in February.

Another factor keeping gold prices buoyant has been investors’ fears that there is too much public- and private-sector debt, and that another debt crisis may be brewing. Global debt is estimated at $184 trillion, which is equivalent to 225% of US GDP in 2017.

There has been a dramatic change in the way institutions view gold ownership today compared to years past. The Bank of International Settlements has given a 0% credit-risk weighting for banks that hold bullion. Instead of treating gold as a commodity, the BIS views gold as a foreign exchange position, underscoring the safety that gold ownership offers.

Goldman Sachs believes that central bank demand is a major reason for expecting higher gold prices in the months ahead. They expect gold to move up partly because of increased purchases from the central banks of China, Russia and Kazakhstan. Growing institutional support for the yellow metal is one of several reasons for expecting gold’s recovery to continue well into 2019.

Gold prices have held firm for the last three months even as the US dollar’s strength has weakened, a testament to the metal’s institutional support. Two reasons that would increase gold’s appeal with small investors are a weakening US or global economic outlook and a weaker US dollar index.

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