Central Bank Gold Purchases Double Despite Record High Gold Prices

The law of supply and demand is one of the bedrocks of economics. And for most goods the higher the price of the good, the less quantity of that good is demanded.

We’re seeing that through much of the economy today, as higher prices for food, gas, clothing, etc. are dampening consumer demand. But sometimes higher prices seem to actually stimulate demand for certain goods.

Goods with a certain cachet or luxury appeal may actually see an increase in demand when prices rise. And gold today seems to be one of them.

When gold was trading around $1,200 an ounce a few years ago, gold demand was relatively subdued. But today with the gold price more than twice as high and at all-time highs, gold demand is much stronger.

And while that higher gold price has certainly dampened demand in certain sectors of the gold industry, it hasn’t damped demand in many others.

Central Banks Remain Strong Gold Buyers

Central banks in July doubled their overall gold purchases versus the previous month, with the 37 tonnes purchased making for the largest overall month of purchases since January, and the second consecutive month of increasing purchases.

While high gold prices had seemed to dampen central bank gold demand earlier in the year, demand is once again on the upswing as central banks continue to buy gold.

Of course, not all central banks are gold buyers, and some have been sellers, perhaps hoping to take advantage of the record high gold prices. But overall, central bank gold buying has far outweighed central bank gold selling.

The irony is that when gold was more reasonably priced, central banks didn’t want it. That was particularly true 20-30 years ago, when central banks colluded to sell off their gold holdings.

The UK was a particular egregious example of that, with Chancellor of the Exchequer Gordon Brown selling off half of the UK’s gold reserves. That gold, sold at an average price of about $275 per ounce, would now be worth more than nine times as much.

Central banks have learned their lesson since that time, and in recent years central banks have been record purchasers of gold. That has helped to buoy gold demand and gold prices, but it isn’t the only source of gold demand.

Is Russian Gold Demand Helping Support Gold Prices?

One aspect of gold markets that hasn’t received a lot of attention is the purchasing and selling of gold by Russian firms.

A recent Reuters article highlighted the difficulties Russian firms are having in dealing with China. Secondary sanctions threatened by the US government against banks and firms dealing with Russia have led Chinese banks to take a much harsher stance against cross-border transactions with Russia.

As a result, payments between Russia and China have almost ground to a halt. And while workarounds have been found, it has significantly lengthened the time of the payment process and has led trade to nearly come to a standstill.

One of the workarounds was for Russian firms to buy gold, ship it to Hong Kong and sell it there, and then deposit the cash into a bank account in Hong Kong. It’s a bit of a circuitous means of making payment, but if it works, it works.

That highlights the continuing importance of gold in international trade, and one of its potential use cases that could be helping in some small way to keep gold demand high.

Investment Demand for Gold Remains Strong

Gold demand from investors remains strong as well. Even though Q2 bar and coin demand saw small decreases from a year ago, a significant increase in OTC gold demand helped push overall gold demand higher.

This is a positive sign that higher gold prices haven’t dampened gold demand. While demand from the jewelry industry has of course fallen, as gold is just an input in jewelry making, that has been more than made up for by investment demand and central bank gold demand.

When gold starts to rise like this, the attention on the gold price tends to make gold a little more popular, and people begin to start thinking a little harder about making gold a part of their investment portfolio. And if gold really takes off in the coming years like it did post-2008, that could spur even more gold demand.

Is Gold Part of Your Portfolio?

Buying gold to add to your financial portfolio can be done relatively easily, no matter which way you decide to buy gold. Direct cash purchases of gold coins and gold bars remain a popular option, but there’s also the option of a gold IRA.

Gold IRAs have been rising in popularity recently, as they allow you to protect your existing retirement savings with physical gold. You can fund a gold IRA with a tax-free rollover from your 401(k), 403(b), TSP, IRA, or similar account into your gold IRA.

That allows you to purchase gold coins or gold bars to be held by your gold IRA, which then enjoys all the same tax advantages of any other IRA account. Your gains accrue tax-free, you only pay taxes when you take a distribution, and you can take a distribution either in cash or in gold.

If you’re looking for a way to protect your hard-earned wealth in the face of potential recession, gold can be one way of doing that. Just like central banks have added to their gold holdings in order to weather the coming storm, you too can add gold to your holdings.

Goldco has helped thousands of customers secure their financial future by owning gold, and our more than 6,000 5-star reviews are a testament to our devotion to quality precious metals products and outstanding customer service.

If you want to learn more about how owning gold can help benefit you, call Goldco today.