Looks Like A Gold Buy Up

• Central banks are buying gold at record levels with holdings now at 50-year highs: Sprott
• Gold tends to hold its value in times of crisis
• Central Bank buying ‘extremely’ bullish: Goehring & Rozencwajg
• They say investors with no performance constraints “should maintain total precious metals exposure”

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

Why are Central Banks hoarding bullion at a record rate?

Central banks are buying gold at record levels with holdings now at 50 year highs, says Paul Wong, Market Strategist at Sprott.
Central banks hold a mix of assets as reserves to achieve specific policy objectives, like maintaining exchange rate stability, providing liquidity in times of crisis, earning income on reserves and managing risks.
They mostly comprise foreign currencies (63%), government bonds (23%),and gold bullion (7%)
Gold tends to hold its value in times of crisis, like right now.
The latest gold purchasing data shows central banks bought 417 tonnes in Q4 2022, slightly down on Q3’s revised figure of 445 tonnes.
That’s huge. For context, the average quarterly purchase since 2013 was 128 tonnes.

Sprott have identified several reasons for central bank gold purchases over the past months, Wong says.
“These include the need to diversify reserves due to sanctions risk, the poor performance of sovereign bonds in the face of high inflation, a desire for outside money and the de-dollarization process,” he says.
“The current scale of central bank buying is massive — an annualized rate of 1,724 tonnes vs. an average of 512 tonnes over the past decade.
“Central bank gold purchases as a percentage of global gold demand have also tripled to 34% from their average of 11% over the past several years.”
In fact global central bank holdings are now at a 50 year high of ~37,000 tonnes, according to a December World Gold Council report.
“Given the seizure of Russia’s foreign exchange reserves, increasing U.S. dollar weaponization, growing deglobalization trends and the trend towards de-dollarization, we expect gold to increase as a percentage of foreign exchange reserves over the next few years,” Wong says.
“Rising geopolitical tensions would likely add fuel to this increase.”

Central Bank buying ‘extremely’ bullish: Goehring & Rozencwajg

Veteran natural resources investors Goehring & Rozencwajg “firmly believe” that the gold bull market has only started and that a substantial new bull market leg stands directly before us.
“The question remains timing,” they say.
“When should investors significantly increase their exposure to the precious metals complex? We’re watching these underlying data points.”
One of the big ones is Central Bank buying, which continues to set modern day records.
For all of 2022 central banks purchased 1136t of gold, the second-highest amount ever,” Goehring & Rozencwajg say.
“According to the World Gold Council (WGC), you must return to 1967 to find central bank purchases of that magnitude.
“According to the WGC, central banks purchased 417 tonnes in Q4 — almost surpassing the total amount of central bank purchases that occurred in all of 2021.”
A major buyer here has been China, which now has over 2000t of reserves, about 3.4% of the global total.
“Given China’s long-term desire to undermine the reserve currency status of the US dollar(look no further than China’s proposal to the Saudis that they tradeoil in renminbi ),— it will have to own a lot more gold to reinforce the long-term value, integrity, and ultimate convertibility of the renminbi on global currency exchanges,” Goehring & Rozencwajg say.
“Aggressive central bank buying, led by China, gives us further confidence that today’s corrective price pattern in the precious metals markets is nearing its end.”