2024-07-24 07:02:17 ET
Summary
- Gold recently surged to a new all-time high of $2,488, up 18% YTD and 47% since October 2022, gaining attention from investors and financial media.
- Central bank buying of gold has been cited as a key reason for the rally, but data shows their purchases have had a negligible impact on the market.
- Central banks have not proven to be smart money with respect to gold's direction.
- Gold is a useful component of a well-diversified, all-weather portfolio.
Gold is now in vogue among investors and mainstream financial media. The metal has captured much attention as it recently surged to a new all-time high of $2,488. It is trading at about $2,400 as of this writing, up 18% YTD. And it has gained 47% since bottoming at 1628 in October 2022. I have read many commentaries in financial media citing strong central bank buying as a key reason for gold’s surge and as a signal for more gains ahead.
However, these developments made me skeptical. In my view, none of the articles considered central bank buying in the proper context. More specifically:
- How much have central banks bought relative to the total gold tradable market cap?
- How much have they bought relative to total trading volume?
- How useful has their buy/sell behavior been as an indicator of gold’s current and future price trend? In other words, are the central banks “smart money,” as many would have us believe?
Read the full article on Seeking Alpha
For further details see:
The Myth Of Central Bank Gold Buying