Central bank demand for gold reportedly hit the highest levels in 2018 since the end of the Bretton Woods system of dollar convertibility in 1971. With some analysts referring to gold as some type of meaningless relic, this begs the question of why the biggest financial institutions on the planet are looking to acquire even more gold.
Store of Value
Gold has a very long history as a reliable store of wealth and value. In the post-Bretton Woods era and without a return to some type of gold standard, however, some have struggled to make a compelling case for physical gold as an asset class. Some might argue that gold is irrelevant because it produces no income while others may suggest that its price is simply a function of investor sentiment around the globe.
Of the approximate 3500 tons of gold mined each year, much of it ends up in the hands of Chinese and Indian consumers in the form of jewelry and trinkets. Behind the scenes, however, gold may be serving a much greater purpose that could explain why it is so important to the financial titans of the world. The demand for gold by these institutions is due to gold’s ability to preserve wealth and value, and for diversification purposes.
Moving Away from Dollars
The dollar has long been the global reserve currency of choice. Because of perceived stability of the U.S. Government and economy, much of the globe’s largest markets are transacted in dollars. A trend has emerged in recent years, however, that could point to significant change in the global commerce apparatus as it operates today. According to a recent article from the street, the use of dollars in global trade has declined to just under 40 percent according to international payments operator SWIFT.
Some nations, especially those with fundamental issues or disagreements with the U.S., have looked to move away from dollars in an aggressive manner. The Russian central bank is a great example. The central bank has reportedly been the largest buyer of gold in recent years while it has cut its dollar holdings significantly. It’s obvious that demand for gold by the Russian central bank is on the rise. The bank has also increased its allocation to the Chinese Yuan.
The move away from dollars could increase in the years and decades ahead and global central banks appear to recognize this trend. As the dollar’s status as the global reserve currency of choice diminishes, it will be increasingly important to own gold as it is widely considered to be a global currency and the only true form of money left.
Unlike paper currencies, gold cannot default or go bankrupt and carries no counterparty risk. Its role in global finance is set to take a historical turn in the years and decades ahead, and now is the time to start building a significant allocation before prices rise further.
Adding gold to your portfolio has never been easier than it is today. Simply pick up the phone and speak with an Advantage Gold account executive to discuss the potential benefits of gold ownership and how this asset class may play an increasingly important role in the years and decades ahead. Our associates are here to answer any questions you may have and can even show you how to start building a significant allocation today using an IRA account.
Don’t wait for the next major stock market collapse or for the dollar to lose even more of its value before acting. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started now.Tags: 401k gold, advantage gold, best gold companies, best gold ira, best way to buy gold, central bank, china, dollar, Fed, gold, russian central bank