Central Banks… Do They Know Something?

You bet they do!

Nobody knows better than the central banks all the damage they have done to fiat currencies and economies across the globe. So, when they make a concerted effort to insulate themselves from the fallout, we all should pay attention.

The Trend Continues

For a decade and a half now, central banks have been net buyers of gold. But the central bank gold buying for the past four years has been at a record-setting pace. Central banks have purchased more than 1,000 metric tons each year over the past three years.

To put that in perspective, a metric ton is 32,000 troy ounces. At $3,300 per troy ounce, a metric ton represents $105,600,000 worth of gold.

And they are not slowing down. It is almost a foregone conclusion that 2025 will be the fourth straight year over 1,000 metric tons. That represents a 40-50% increase in central bank gold purchases versus the average for the previous decade.

According to the recently released World Gold Council Central Bank Gold Reserves Survey 2025, respondents overwhelmingly believe central bank gold reserves will increase over the previous year… overall and for themselves. They are also overwhelmingly in agreement that the increase in central bank gold reserves will come at the expense of the U.S. dollar.

The most popular location for central banks to store their gold is in London. But there is a growing number of central banks that are taking control of their gold reserves by storing them domestically.

It is no surprise that gold has surpassed the euro as the second largest pool of central bank reserves… only trailing the U.S. dollar.

They Made This Mess

I mentioned at the start that nobody knew better than the central banks the extent of the current monetary crisis. For decades, central banks have been expanding money supplies.

Undisciplined politicians with limited to no fiscal restraint have been overspending to secure the approval of the public… and more importantly… their votes. They have been spending more than they receive in tax revenues year after year.

The chasm between income and outgo must be bridged somehow. The most popular method is by expanding the money supply. But there is a consequence to this solution. The increased volume of fiat currency in circulation drives the prices of anything and everything of value higher.

Consumer price increases are caused by monetary expansion. Monetary expansion is the definition of inflation. Central banks pull the levers on the money supply, and consumer prices rise as more “worth less” units of fiat currency chase a finite number of goods and services.

In this scenario, everything of any value – a gallon of gas, a cup of coffee, eggs, a home, a college education, an ounce of gold or silver – become more expensive.

Central banks created this problem. Therefore, nobody knows the solution better than them.

The Antidote to the Poison

Earlier this year, I was manning Asset Strategies international’s booth at a conference. A client walked up and started discussing central bank gold purchases with me. He asked, “So, do you think central banks are buying gold because they are trying to combat inflation?”

I replied, “The central banks are buying gold because they know full well that they created the inflation problem.”

The magnitude of the central bank gold purchases over the past four years suggests an overwhelming consensus that gold is the answer to the problem. That resolve stems from the knowledge they were implicit in creating the problem.

In the most recent World Gold Council survey, central bankers were very clear on why they were making record purchases. The all cited gold’s…

• Performance during times of crisis
• Role as a long-term store of value / inflation hedge
• Role as an effective portfolio diversifier
• Lack of default risk
• High liquidity

There were other reasons given as motivation for central bank gold purchases, but at the very top of the list were “crisis hedge” and “inflation hedge.”

You Should Follow the Central Banks’ Lead

Central banks created the current fiscal problem. Therefore, they know the solution better than anyone else. Gold is that solution, and central banks are buying it up faster than they ever have in recorded history.

Now, you can ignore that. You can put your head in the sand. But ignoring this problem will not make it go away.

You can choose to wait on the sidelines like so many Western retail investors are doing right now… like so many Western retail investors have done for the past three years. But you will most likely see gold rise steadily year after year like they have.

I was told gold was too expensive at $1,800 per ounce. They were wrong.

I was told gold was too expensive at $2,200 per ounce. They were wrong.

I was told gold was too expensive at $3,000 per ounce. They were wrong.

I fully expect to be told that gold is too expensive at $4,000 per ounce next year. They will be wrong too.

Central banks are buying with a purpose… right here and right now. You should too. Prices are lower than they will be going forward because the Western retail investor is not buying gold yet. But they will… and soon.

Do you want to buy gold at the front end of that trend or at the tail end? I can tell you that the prices are lower at the front end… and the current premiums are the lowest I have seen in 30 years in this industry.

If you choose to buy well, buy gold now. Those of you who do will thank me. Those of you who do not will be kicking yourselves like you have the past three years.

The best way I know to Keep What’s Yours is to buy gold and silver well… now.

The central banks absolutely know this. Do your portfolio a favor and follow their lead.

Good investing…