do banks know something they aren't telling us? Like are the expecting a recession or even a Great Depression?
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woman looks at a Rolls Royce "RRR65" car model made from pure gold.
Babu Babu/Reuters Central banks are set to pile into gold like they
haven't throughout this year as they look for yield, according to
Capital Economics. The …
The world's biggest buyers of gold are getting ready to load up
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woman looks at a Rolls Royce "RRR65" car model made from pure
gold.
Babu
Babu/Reuters
Central banks are set to pile into gold like they haven't throughout this year as they look for yield, according to Capital Economics.
The World Gold Council said on Thursday that central banks sold more gold than they bought in May — a net 10.6 tonnes.
From January through May, they decreased their reserves by about 8.7 tonnes. The biggest drop came from Venezuela, which is struggling to keep its economy going.
Meanwhile, gold prices have been surging. The metal was the best-performing asset in the volatile first quarter, and has gained 8% since the UK referendum to leave the EU in June.
It's those high prices have, in part, kept central banks from buying gold, wrote Simona Gambarini in a note Wednesday.
"That said, high gold prices haven’t prevented the
official sector from increasing their gold reserves in the
past. What’s more, according to a Fitch Ratings report,
the level of negative-yielding global debt has risen to almost
$12 trillion in July, a 12.5% increase since the end of May as
the economic and political uncertainty following the UK’s vote to
leave the European Union (“Brexit”) has boosted demand for safe
havens. With rates having turned negative in most of
Europe and Japan and likely to remain so for some time on
"Brexit" woes, the opportunity cost of holding gold has all but
disappeared."
Central banks and retail investors alike are hunting for safe
assets with a decent yield. As Gambarini noted, the government
bonds of some the world's strongest economies are safe bets but
have negative yields.
That's likely to boost the case for gold as a strategic asset for the world's central banks, according to Gambarini.
"In particular, we expect central banks from developing economies to be the main source of demand from the official sector in the future," wrote Gambarini. Historically, they've had much less gold in their reserves compared to their developed counterparts, she said.
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