Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Why Do Central Banks Keep Buying Gold?

By ETF Daily News (Andy Hecht)CommoditiesOct 24, 2019 12:50AM ET
Why Do Central Banks Keep Buying Gold?
By ETF Daily News (Andy Hecht)   |  Oct 24, 2019 12:50AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
  • Central Banks are gold’s leading proponents
  • The Dutch central bank explains why
  • Central bank buying provides support for the precious metal

The dollar is the world’s reserve currency. Meanwhile, gold is an asset that central banks around the world hold, but rarely talk about. The International Monetary Fund reports on central bank’s reserve holdings each month. The IMF classifies gold holdings as part of a nation’s foreign currency reserves.

Gold is a hybrid as it is part commodity and part currency. In its role as a reserve asset, gold continues to retain its position as the world’s oldest means of exchange. The yellow metal has been around a lot longer than any of the world’s currencies in circulation today. Gold has been a currency for thousands of years. There are no mentions of the dollar, euro, yen, pound, or any of the other currencies in the Bible, but gold and silver are prominently featured.

In many ways, gold acts as a barometer for the value of foreign exchange instruments. Since the early 2000s, the price action in the gold market has been telling us that all currencies have been losing value compared to the precious metal. The SPDR Gold Shares ETF product (NYSE:GLD) holds gold bars.

Central Banks are gold’s leading proponents

Throughout the history of the world, producers have extracted around 190,000 tons of gold from the crust of the earth. Central banks currently hold over 30,000 tons of the yellow metal with the US leading the world with holdings of over 8,000 tons.

Central banks, governments, monetary authorities rarely talk publicly about gold. The old saying that “silence is golden” could be the most appropriate comment when it comes to the official sector’s attitude towards the precious metal. Gold went through a period at the beginning of this century when it was out of fashion. Particularly with some of the world’s central bankers. The hub of the international gold market is in London, and the Bank of England has been a leading regulator when it comes to the trading of the yellow metal. From 1999 through 2001, the UK’s central bank sold one-half of its reserves. The sales were below the $300 per ounce level. At the time, the Bank of England and other central banks considered gold a relic of the past. However, at around six times higher than the price they sold; the official sector realized that there is no other asset quite like gold.

The Dutch central bank explains why

During October, one of the leading central banks broke its silence when it comes to its opinion of the gold market. The Dutch central bank, De Nederlandse Bank, said that gold was a critical asset. A report from the central bank said,

“If the entire system collapses, the gold stock provides a collateral to start over. Gold gives confidence in the power of the central bank’s balance sheet. That gives a safe feeling.”

The Dutch central bank holds 612.5 metric tons of gold and is the world ninth leading holder of the yellow metal ahead of India and behind Japan. The Dutch comments on gold are particularly significant these days. The yellow metal recently made news highs against virtually all foreign currencies except for the Swiss franc and US dollar. Meanwhile, the precious metal also appreciated against the franc and greenback since June.

Central bank buying provides support for the precious metal

While central banks were net sellers of gold at the turn of this century at bargain-basement prices, today they are net buyers of the precious metal adding to reserves. According to the World Gold Council, a dozen central banks increased their gold holdings by at least one ton through the first eight months of 2019. Russia and China have been the leading buyers. Both nations are significant gold producers and have been accumulating domestic production. At the same time, Russia and China have also purchased gold on the international market to increase their reserves.

Gold is the ultimate hard currency. While governments can print fiat currencies to their heart’s content, production limits the supply of gold. The world’s central banks rarely talk about the precious metal. The recent comments by the Dutch provide a window into why gold is the ultimate store of value in the world and why the yellow metal should be an asset in all portfolios.

The GLD was trading at $140.76 per share on Wednesday morning, up $0.56 (+0.40%). Year-to-date, GLD has gained 13.84%, versus a 12.67% rise in the benchmark S&P 500 index during the same period.

Why Do Central Banks Keep Buying Gold?

Related Articles

Why Do Central Banks Keep Buying Gold?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email