A 50-year record! Why do central banks need so much gold?
Central banks have set a record of gold purchase. Besides, gold prices have skyrocketed! On March 7, prices reached $1270 per ounce.
What do these facts say about the future of this precious metal?
The media has provided news coverage about an important record in the gold world. Central banks have become the protagonists of this piece of news since they have reached the record of gold purchase in 50 years. Since 1965 there were no such great figures.
Leaders in gold purchase: 590 metric tons in 2015!
As reported in the media for the last 8 years Central Banks are net buyers of gold, which means that they have bought more gold than they have sold.
The International Monetary Fund informs that we are witnessing a major purchase of gold unseen since the war in Vietnam. Some of the main buyers are Russia, China and Kazakhstan which last year accumulated 590 metric tons of gold, 14% of the global gold demand.
Gold purchase to support the economy
Why do central banks hoard gold? These institutions utilize this asset to diversify their reserve currencies. Given the current climate of economic instability, central banks are gearing up for a possible recession by acquiring this safe-haven asset as a form of insurance.
Another measure taken to prevent a downturn in the economy has been to implement a policy of negative real interest rates. This in turn has increased the appeal of gold for buyers.
Gold prices continue growing
What are the consequences of this acquisition in gold prices? According to Deutsche Bank, gold has been the most expensive asset over the last 15 years.
At the end of 2015, when the Fed increased interest rates, the bank predicted a drop in gold prices to $1,000 per ounce. In spite of that, the bank modified its prediction in which gold is expected to grow up to $1,230.
Banks, institutions, and people are becoming more and more aware of the importance of this precious metal, and the prices are growing accordingly.
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