Central Banks Are Converting Dollars to Gold En Masse

The World Gold Council’s first-quarter purchase reports are now in. According to the report, gold buying in the first quarter of 2019 has reached the highest level in six years.

Led by Russia and China, central banks across the globe are diversifying their reserves, shifting away from the US dollar, and converting their dollar-denominated assets to gold.

Central bank gold reserves have surged by 145.5 tons in the first quarter of the year, a 68% increase as compared with last year’s purchases.

Among the largest buyers is Russia, occupying the lead position, aiming to significantly reduce its US Treasury exposures, accelerating its drive to de-dollarize reserves.

The World Gold Council also noted sizable purchases by countries that traditionally have held lower shares of gold exposure.

Ecuador, for instance, added to its reserves last quarter, its first large gold purchase since 2014. Qatar and Columbia also made sizable buys.

Overall, these central bank purchases have been lifting gold prices, as they continue buying en masse into decreasing retail demand for coin, bullion, and gold-backed ETFs.

Despite the massive inflow of retail investment cash toward gold-backed ETFs in Q1, the outflows in April practically erased all of its gains.

Retail investors continue to dump the very thing that central banks across the globe are clamoring to accumulate.

This creates the ideal buying environment for central banks, financial institutions, and larger private investors looking to snap up what retail investors are dumping back into the market.

In addition to their goals toward diversification away from the US dollar and toward establishing a hedge against global economic uncertainty, central banks are well aware of the headwinds affecting the supply side--that around 20% of global gold production is currently being produced by smaller “artisanal” miners.

In short, the gold supply is dwindling, gold production...decreasing.

For gold investors, the outlook is bullish, as gold prices are likely to rise supported by central banks purchases.

As we’ve said before, if you are looking to load up on gold not only for purposes of gaining safe haven exposure but also to achieve portfolio growth, now is the time to buy gold.

Gold is still relatively cheap, but it might not be for long, as central banks accelerate their buys, and retail investors follow through at tail end of the forthcoming gold bull market.