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Central Banks Continue to Buy Gold. Should You?

AngelaRoberts

Written by Angela Roberts

Mar 9, 2023

I’ve written before about how important I think it is to keep an eye on financial news. This is not necessarily because every headline deserves immediate action, but because staying generally informed is, in my opinion, one of the best ways to achieve peace of mind when making decisions regarding your financial portfolio.

For example, on March 2, 2023, the World Gold Council reported that central banks—the banks operating on behalf of world governments (for example, ours is the Federal Reserve)—purchased 31 metric tons of gold in January 2023. This was an increase of 16% over the previous month’s central bank purchases, a notable increase because 2022 was a record-setting year for central bank gold demand.

But why are central banks continuing to buy physical gold, and what does that mean for you?

Central banks know what we know—that economic and geopolitical uncertainty permeates 2023.

From Russia to China to the Federal Reserve, Americans seem to be continually faced with geopolitical and economic uncertainty. That’s true for central banks as well. And it seems that they’re following the same conventional wisdom millions of Americans follow—to reduce overall risk exposure by diversifying with gold in times of uncertainty.

With the risks of continued inflation, recession, and further geopolitical instability, many may see paper-based assets like stocks as riskier than in previous years. And to help balance against that risk, they may allocate a portion of their portfolio to a different asset type—one that has historically been seen as a hedge against factors like inflation and geopolitical volatility. With a lower overall risk exposure, portfolio owners may experience some peace of mind in feeling that their wealth now has an added level of protection.

With large quantities of gold in their reserves, central banks and their governments may also be seeking that same peace of mind. Or perhaps there’s more to the story than simply protecting against uncertainty.

Board with stock data and word "UNCERTAINTY"

Central banks might also know something we don’t.

As a CEO, I always keep in mind that I can never know everything. Leading means constantly learning and knowing how to surround yourself with knowledgeable individuals who can help you make the best decisions possible. The same is true for governmental financial institutions—central banks around the world have expert analysts working hard to help make predictions and formulate policies to bolster economic growth. This is a long way of saying, “They may know something we don’t.”

Upcoming policy decisions or economic factors that aren’t as apparent to you or me may be leading central banks to add more physical gold to their reserves. If so, it’s another reason for us to keep a close eye on what the governments of the world are choosing to do with their money—and perhaps look more closely at our own portfolios.

European Central Bank building in Frankfurt, Germany

With central banks generating record levels of demand for gold, NOW may be the time to add more of the precious metal to your own portfolio.

Let me start by saying that I’ve never been a follower—I don’t like to just jump in line and take a certain action because I see others doing the same thing. Instead, I like to do my own research, consult with those who know more than me, and then make my own educated decisions.

When I say that record demand from central banks may mean that NOW is the time to add more gold to your portfolio, it’s not simply because central banks are buying gold. Instead, I see it as a potentially good time to buy because of the factors surrounding the increased demand for gold by central banks.

The same factors that have historically led to increased consumer demand are those that may be contributing to increased central bank demand. But since we can’t know for sure—and if we admit that central banks may know something we don’t—that uncertainty may give us even more reason to consider the many benefits of adding additional protection to our portfolio in the form of physical gold.

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