Central banks are buying the most gold since the
end of World War II — here's why
February 11 2019
Central banks have bought the most gold since the end of World
War II, with the commodity becoming an increasingly valuable hedge against
growing global instability.
The near-record buildup in government debt globally,
particularly in the US, makes other perceived risk-free assets less attractive.
Gold is seen to have returns similar to equities in the current
cycle, and a dip in supply makes it a more valuable asset for central banks and
investors alike.
Central banks have been buying up
gold at a rate not seen since World War II as concerns about geopolitics and
the strong dollar see a shift in appreciation for the quintessential risk-free
asset.A broad combination of factors have led to gold's resurgence, according
to the research firm Bernstein. They include geopolitical risk, concerns about
government debt, supply issues, and the perception that gold gives better
returns over other assets."Beyond just the threat of inflation, it is also
remarkable that, for the first time since the end of Bretton Woods and, indeed,
since the end of the Second World War, central bank buying of gold has actually
increased," a note sent to clients by the firm said on Monday.
Equally, the case for gold
purchases is boosted by the near-record levels of government debt in the US,
which makes other potential risk-free assets more questionable and could
increase inflation figures.Gold is trading at $1,310 an ounce, up nearly 10% from
its recent low in September.As well as its value related to inflation, gold is
likely to see demand increase, while supply will stay "flat at best,"
Bernstein said, boosting its value to central banks and investors alike.
"As with any other commodity, robust demand and weak supply implies price
appreciation," Bernstein's analysts wrote.Gold holdings had been on the
decline for years but have seen a clear boost recently.Bernstein also pointed
out that beyond the conversation about central banks' holdings of gold was its
increase in use over jewelry. Both private and public "monetary"
holding of gold have overtaken jewelry demand as the primary source of demand
growth for gold in recent years, according to Bernstein.
Source:/www.businessinsider.com