Central Banks Will Continue To Push Gold Higher

Thursday, April 14, 2016

Gold is one of my favorite commodities to watch…and for good reason. The reality is that gold isn't simply used in jewelry and other consumer goods. No, it's used as an investment, which adds quite a bit of volatility to the price of the commodity. While the commodity has seen a bit of a roller coaster in value this year, it seems as though things are going to be headed up.  And believe it or not, central banks around the world are pushing the value of the precious metal up. Today, we'll talk about what we're seeing from central banks, why central banks are investing in gold, and what we can expect to see from the value of the commodity throughout the year.

Central Banks Are Some Of The World's Largest Buyers Of Gold

Gold enjoys demand worldwide. While you may think that the biggest demand associated with the precious metal is coming from jewelry shops and others that sell the metal to consumers, that's not exactly the case. In fact, central banks are producing a large chunk of the demand for the metal. Believe it or not, many central banks have been bolstering their gold reserves in a big way. According to the World Gold Council, the trend associated with demand from central banks has been in place since the economic crisis of 2008 and 2009. However, in the second half of last year, buying from central banks accelerated in a big way, bringing sales of gold to these banks up to 336 tons in that time period.

Why Do Central Banks Want Gold

Central banks know more about the global economy than anyone else. In fact, it can be argued that changes in the global economy are largely the fault of the central banks in charge of economic regions around the world. With that said, the reason that central banks are buying so much gold is relatively simple to understand. These banks believe that something big is going to happen. Moreover, there's already been quite a bit of evidence with regard to financial strain on the global economy.

In the beginning of the year, the Chinese market crashed, outlining key issues with economic conditions in the region. Not to mention, we've seen big changes from both Europe and Japan in attempts to save their struggling economies. The bottom line is that the central banks aren't simply teams of idiots. They know what to expect and how to prepare for it. At the moment, these banks are preparing for a financial disaster, one that many billionaires (like Carl Icahn) have been predicting for quite some time now.

What We Can Expect To See From The Price Of Gold Moving Forward

Moving forward, I have an overwhelmingly bullish opinion of what we can expect to see from the price of gold. The reality is that central bank demand is a signal that they are concerned about the state of the global economy. Because gold is a safe haven investment, when economic struggles start to hit, we're going to see a rather large spike in the value of the precious metal. On top of the demand from central banks, there are other reasons to be bullish on gold. First and foremost, since the market crashed earlier this year, we've seen an incredible recovery. This recovery is leading valuations in the market to highs that helped to cause the crash in the first place. So, the market isn't going to be able to maintain the growth we've been seeing. On top of that, geopolitical uncertainties are causing further demand in the price of the commodity. The reality is that ISIS is becoming more aggressive, which translates to more military action. We know what that's likely to do to the market. All in all, economically, market wise and geopolitically, things aren't looking great. Consequently, this will lead to increasing demand for gold throughout the year. 

Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.