Why Do Central Banks Buy Gold
Central banks around the world have been quietly buying gold for nearly a decade, reports the Official Monetary and Financial Institutions Forum , and have been net buyers every year since 2008. Their demand for gold jumped from less than two percent of total world demand in 2010, to 14 percent in 2014, adds the World Gold Council .
Now, around 20 percent of all the gold ever mined is held by central banks and governments, with the biggest official holdings at the U.S. Treasury,writes MarketWatch.
Central banks clearly have a growing appreciation for physical gold, but why? And for how much longer will there be enough gold to go around? Follow along to find out and learn how you can apply the same principles to your financial portfolio.
Fast Fact: What’s a central bank?
A central bank manages a country’s money supply and is responsible for promoting the stability of a nation’s financial and economic system. They oversee the commercial banking system, print the national currency, and wield the power to increase or decrease the amount of paper money that’s fed into a country’s economy.
Nearly every country in the world has a central bank. Major central banks within the world economy include the U.S. Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Swiss National Bank, Reserve Bank of Australia, and Reserve Bank of New Zealand.
Beware: Official Us Government Price For Gold Is Only $4222/oz
Sub-title: Why You Might Want to Seriously Consider Protecting Yourself From Possible Future Gold Confiscation and How to Go About Doing So Words: 1740
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below reformatted and edited excerpts from Michael Trudeaus original article* for the sake of clarity and brevity to ensure a fast and easy read. Trudeau goes on to say:
When it comes to capital preservation, few resources have been able to hold their value like gold. Gold remained quite stable until 1971 when Richard Nixon demonetized gold, detaching Federal Reserve notes from exchange at the predetermined price of gold. Today, money is created by a privately owned central banking cartel and all U.S. citizens are forced to accept these fiat paper notes a payment for all debts, public and private, as a result of current legal tender laws.
Government is the only agency that can take a valuable commodity like paper, slap some ink on it, and make it totally worthless. Ludwig von Mises
On March 4 1933, more than 12,000,000 people were out of work 8,000 banks had failed and the U.S dollar was in trouble because people were losing confidence in paper currency. In fact, panicked people were draining all banks of much needed currency and people were hoarding gold and silver.
Collectors of Rare and Unusual Coins Exempt
Are You Investing In Gold Yet
What Happened To Gold In Q1? Which Gold Stocks To Watch In 2021?
Exclusive Information You Need To Make An Informed Decision.
2020 will mark a second year of declines, with additions for the first seven months of the year falling significantly short compared to the same period in 2019. Between January and August of this year, 8.4 million ounces of gold were purchased the same period in 2019 saw 15.8 million ounces acquired.
The drop off is related to a rapidly rising gold price, which breached its previous all-time high in August, when values rose to US$2,063 per ounce. The price of spot gold had been holding in the US$1,500 range off of geopolitical tensions, but that changed when COVID-19 hit in earnest in March.
Widespread market volatility paired with a declining US dollar added to golds safe haven asset status, driving the metals value higher following a dramatic market decline.
Its worth noting that even though purchases have dipped in 2020, central banks are forecast to continue being net buyers of the precious metal over the next 18 months.
As the Dutch central bank notes, A bar of gold always keeps its value. Crisis or not. That gives a safe feeling. The gold holdings of a central bank are therefore a beacon of confidence.
Central banks serve a few primary functions, including setting interest rates, regulating monetary policy and controlling the printing and circulation of coins and bills.
Recommended Reading: Where To Sell Gold Rdr2
Gold As An Investment
Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and volatility as are other markets. Compared to other precious metals used for investment, gold has been the most effective safe haven across a number of countries.
After The Gold Standard We Got Bigger Government And A Smaller Dollar
August marks the 50th anniversary of Richard Nixons infamous to close the gold window, reneging on the U.S. governments pledge to redeem dollars for gold. Although Nixons action spelled the end of the postwar Bretton Woods framework, the system in place circa 1970 was a pale shadow of the original gold standard.
To realize just how much governments have transformed their role in the peoples money, it is useful to explain how the system originally worked.
From the founding of the constitutional Republic through the eve of the Civil War in 1861, the federal government didnt issue any legal-tender paper currency at all. Rather, for the official money, the federal government produced gold and silver coins stamped with various dollar denominations.
This is a critical distinction between the old and new ways: under Bretton Woods, the government pegged the dollar to gold . U.S. authorities decided how many dollars they were going to print, and if they were too aggressive, then other central banks could turn in their dollars and eventually drain American vaults of the yellow metal. But before the Civil War, government officials werent in charge of picking the quantity of dollars at all. Rather, the public determined how many dollars were in circulation by presenting gold or silver to the government for minting as coins according to weights specified in law.
- Delivered to your inbox midday
Recommended Reading: How Much Is 10k Gold Worth
The Rise Of The Gold Standard
The gold standard is a monetary system in which paper money is freely convertible into a fixed amount of gold. In other words, in such a monetary system, gold backs the value of money. Between 1696 and 1812, the development and formalization of the gold standard began as the introduction of paper money posed some problems.
The U.S. Constitution in 1789 gave Congress the sole right to coin money and the power to regulate its value. Creating a united national currency enabled the standardization of a monetary system that had up until then consisted of circulating foreign coin, mostly silver.
With silver in greater abundance relative to gold, a bimetallic standard was adopted in 1792. While the officially adopted silver-to-gold parity ratio of 15:1 accurately reflected the market ratio at the time, after 1793 the value of silver steadily declined, pushing gold out of circulation, according to Gresham’s law.
The issue would not be remedied until the Coinage Act of 1834, and not without strong political animosity. Hard money enthusiasts advocated for a ratio that would return gold coins to circulation, not necessarily to push out silver, but to push out small-denomination paper notes issued by the then-hated Bank of the United States. A ratio of 16:1 that blatantly overvalued gold was established and reversed the situation, putting the U.S. on a de facto gold standard.
Are Central Banks Being Priced Out
Since central banks became net buyers of gold a decade ago, the price has increased 88 percent. In 2010, the price of an ounce of gold was US$1,096. At its peak in 2020, gold was selling for US$2,063.
After making the second largest net gold purchase by a central bank in Q1 of this year, the Russian central bank suspended new gold purchases. Demand for gold by the Russian bank had been steady since 2006. Weakening oil prices, rising bullion prices and the countrys already robust gold reserves are likely the reasons behind the buying moratorium.
While its new stance could be indicative of the position of larger central banks around the globe, CPM Group states that buying by India and Turkeys central banks is likely to continue.
Turkey made the largest net purchase of gold in 2020, acquiring 198 tonnes.
One of the primary reasons these two central banks have been adding gold to their holdings is the weakness in their domestic currencies, which they seek to hedge by purchasing dollar denominated gold,notes CPM Group.
If the gold price continues riding high, central bank buying is likely to remain muted in North America and parts of Europe into 2021. Of course, the need to counterbalance COVID-19 debt could result in increased gold demand and heightened central bank purchases moving forward.
Dont forget to follow us for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Read Also: Buy Gold From Dubai
To Facilitate Stability And Growth
The primary function of central banks is to promote stability and foster economic growth. As currencies become increasingly devalued, banks must ensure their respective economies dont flounder. As such, gold is used to control the size and speed of market growth.
Using Chinese and Russian central bank gold buying as an example, a Global Bullion report explains that emerging economies are especially exposed to free market excesses and use gold to offset the risk.
Owning gold prevents these excesses from utterly driving currency and damaging industry,it reads.
Can I Drop My Precious Metals At The United States Gold Bureau
We welcome visitors to our headquarters location in Leander, Texas. Since we do have an extensive security procedure, we urge visitors to give us a call and set an appointment at least 48 hours before you arrive. You may work with a Precious Metals Specialist for the entire process to make sure your visit is arranged with our security staff.
Also Check: What Dentist Does Gold Teeth
Q: How Big Is A Gold Bar
A: Gold bars may look big in pictures, but theyre relatively small in size. Heres a rundown:
- A 1-oz. gold bar from the Perth Mint is about 0.95 inches wide, 1.65 inches long, and 0.08 inches thick.
- A 10-oz. gold bar from the Perth Mint is about 1.46 inches long, 2.28 inches long, and 0.35 inches thick.
- A 1-kilo gold bar from the Perth Mint is about 1.58 inches wide, 3.15 inches long, and 0.71 inches thick.
- The standard gold bar, the type youd find at Fort Knox, is about 7 inches wide, 3.63 inches long, and 1.75 inches thick.
Government Confiscation Of Gold: Understanding The Facts
Many investors have heard that the U.S. government confiscated the public’s gold years ago. Is it true? Is it a rumor? Could it happen again? This is an issue that comes up time and again with gold investors. Rather than speculate, we believe it’s best to consider the facts. Below is a timeline that explains exactly what happened and, more importantly, how today’s investors should react and what they can do to make sure they’re prepared, in case it happens again.
May 1, 1933 President Roosevelt’s Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 or up to ten years in prison, or both. An exception to the order was listed in section 2 Gold coin and gold certificates in an amount not exceeding in the aggregate $100 belonging to any one person and gold coins having a recognized special value to collectors of rare and unusual coins.
— The Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury and changed the value of the dollar in gold from $20.67 to $35 per ounce.
Gold Confiscation in the Future
Also Check: Gold Rx Card
Gold & Silver Confiscation: Can The Government Seize Assets
One concern of retail precious metals investors is the possibility of a gold confiscation. Imagine having the forethought to buy gold to shield your finances from an economic or monetary crisisonly to have it taken away from you by your government.
Youd lose not just the protective buffer you put in place but potentially a chunk of your net worth.
Private And Confidential Yes But
First, when it comes to privacy and confidentiality, there are two issues to consider: buying and selling.
When you buy precious metals in the US…
The transaction is almost always private. There is no reporting requirement from a gold dealer to the IRS of what we sold to you, unless BOTH of the following conditions exist:
1. The transaction exceed $10,000 AND
2. Actual cash is used to make the purchase.
In this highly unlikely event, a dealer would be required to file a Form 8300 with the IRS, as well as a Suspicious Activity Report with the Financial Crimes Enforcement Network , due to regulations under the U.S. Patriot Act and Anti-Money Laundering rules. Your transaction is also confidential. The payment methods on our website are all encrypted. We also do not sell your email address or any information about you whatsoever to any agency, public or private. One other exception: when you sell gold or silver inside an IRA, this triggers a reporting requirement from the custodian on what is called Form 5498, which discloses all of your IRA investments each year. This is ostensibly so the IRS can track your basis and properly check your calculations for taxes owed at the time of withdrawal.
Read Also: Does Gold Bond Cure Athlete’s Foot
How Long Does It My Package Take To Arrive At The United States Gold Bureau
Our buying process is not only straightforward and simple, but reliable and efficient. After creating a personalized client account on our secure website, you will receive an instant quote on the purchase price of your coins or bars, be able to print a packing list and pre-paid FedEx labels for shipping to our facility in Leander, Texas. Depending on where you live in relation to Leander, TX, we see most packages arrive in our facilities within three business days. This timeframe can fluctuate during storms, holidays or other events outside of the carriers control. Your payment is processed soon after your items are received and verified by our team.
Support For The World Economy
First, any sign the U.S. was considering selling its gold would wreak havoc in the marketplace. Prices would collapse and gold investors and speculators would be devastated. The reserves of central banks around the globe would decline sharply and the solvency of so-called bullion banks would be threatened. These banks are the same too-big-to-fail banks we bailed out during the 2008-2009 financial crisis and wed face the prospect of letting them fail or bailing them out again.
2013 World Gold Reserves. Courtesy MoneyWeek.
Since the U.S. holds only 2.5% of the worlds gold, you might think this assessment is hyperbolic. Not so. A year ago, when reports swept the market that Cyprus might be forced to sell its gold reserves to deal with its debt crisis, world gold prices plummeted. U.S. gold reserves are 330 times larger than Cyprus reserves.
Don’t Miss: Dentist In New Orleans That Do Gold Teeth
The Fall Of The Gold Standard
With World War I, political alliances changed, international indebtedness increased and government finances deteriorated. While the gold standard was not suspended, it was in limbo during the war, demonstrating its inability to hold through both good and bad times. This created a lack of confidence in the gold standard that only exacerbated economic difficulties. It became increasingly apparent that the world needed something more flexible on which to base its global economy.
At the same time, a desire to return to the idyllic years of the gold standard remained strong among nations. As the gold supply continued to fall behind the growth of the global economy, the British pound sterling and U.S. dollar became the global reserve currencies. Smaller countries began holding more of these currencies instead of gold. The result was an accentuated consolidation of gold into the hands of a few large nations.
Then, in 1934, the U.S. government revalued gold from $20.67/oz to $35/oz, raising the amount of paper money it took to buy one ounce to help improve its economy. As other nations could convert their existing gold holdings into more U.S dollars, a dramatic devaluation of the dollar instantly took place. This higher price for gold increased the conversion of gold into U.S. dollars, effectively allowing the U.S. to corner the gold market. Gold production soared so that by 1939 there was enough in the world to replace all global currency in circulation.
Do You Report My Sales To The Government
At JM Bullion, we pride ourselves on maintaining the privacy of our customers. This being said, although we do not report the majority of our customers sales to the government, we are legally obligated to file a 1099-B form when these sales apply to certain products or exceed a particular amount. Failure to report such sales could result in both civil and/or criminal tax penalties, as well as the possibility of imprisonment.
It is important for customers to understand that while the 1099-B form will require us to provide the some of the sellers basic information, such as address and phone number, this information remains strictly between JM Bullion and the IRS. No other third parties will have access to this information. Customers, who would like to learn more about precious metals reporting policies, are strongly encouraged to either visit IRS.gov or consult with a professional tax expert.
Recommended Reading: How To Get Free Golden Eagles In War Thunder