Central Banks Expect Gold Holdings To Increase Survey Shows | Arcadia Economics

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Summary

➡ Arcadia Economics talks about how a survey by the World Gold Council reveals that central banks anticipate a decrease in US dollar-denominated reserves and an increase in gold reserves over the next five years. The survey also shows that central banks expect global gold holdings to increase over the next year. Factors influencing these decisions include concerns about inflation and geopolitical instability. The survey also highlights a significant difference in investment between gold and silver, with gold seeing much higher investment levels.
➡ The text discusses the potential impact of a shift in investment from gold to silver, suggesting that if 10% of the money invested in gold was instead put into silver, it could more than triple the silver investment market. It also mentions the possibility of silver being added to the BRICS unit basket and the potential for a large wave of price increases. The text also touches on the concept of a gold-backed bond issued by the US and the involvement of the IMF and World Bank in a new gold-backed currency in Zimbabwe. Lastly, it provides some data on silver and gold imports in India.
➡ There’s a potential supply shortage in the silver market. The Shanghai Futures Exchange’s silver stocks have dropped significantly, from 100 million ounces in 2021 to 700 tons now. Other exchanges like the LBMA and Comex also show a decrease in silver stocks. Meanwhile, Silver Viper Minerals is advancing its project in Mexico and plans to increase its silver resource through drilling.

Transcript

Did have some notes about a central bank gold survey where they asked, what proportion of total reserves, foreign exchange and gold do you think will be denominated in us dollars five years from now? And we see that the top answer, basically 50% for the last two years, they see that being moderately lower, 13% significantly lower. Well, hello there, my friends. Chris Marcus here with you for Arcadia economics. And in today, today’s video, we have some interesting news about how central bank participants are feeling about the gold market, and we’re going to dig through that, as well as an interesting comparison between gold and silver that perhaps will explain some of the price movement we see from time to time.

So welcome on in and let us get started. I’m recording this Tuesday night on the east coast. So we’re looking at the Tuesday trading here, where certainly a volatile day. We had prices eyes 29.71, then all the way down to right around that $29 mark. And I think certainly encouraging news. You see it dip down quickly and bounce back rather quickly. A similar effect in the gold market and especially where people have been watching gold and silver for quite some time, very different from what we were seeing, oh, back in 2018, 2019, maybe some of the years before that.

Even when often you’d see when gold and silver sold off, it was days, usually weeks or months before we would get a rebound like this. And I think the strength of the physical market speaks to a lot of the reason why we’re seeing certain things like that. So can only imagine what Wednesday’s trading will hold, which you’ll have seen a snippet of by the time this airs. But anyway, we see golden at 23 43. And as I mentioned, did have some notes about a central bank gold survey, and this was done by the World Gold Council.

And some really interesting questions they asked here, as well as the answers. And we’ll start with chart one, where they asked, what proportion of total reserves, foreign exchange and gold do you think will be denominated in us dollars five years from now? And we see that the top answer, basically 50% for the last two years. They see that being moderately lower, 13%, significantly lower in 2024. So that’s 62%. Then you add in 18%, which brings us to 80 in unchanged, moderately lower or significantly lower, and does not seem like central banks are anticipating as a whole an increase in that.

So we go on to question two here. What proportion of total reserves do you think will be denominated in gold five years from now? And you can see up to 66%, think moderately higher, small amount significantly higher. And in the lower category, we see overall only 13%. So to point out, this isn’t my opinion, or Andy Shekman or Vince saying it, but again, the central banks that have just set records over the past two years. And another thing that I find fascinating here is, you see, even after what we’ve seen in the last two years, this has gone from 46% to 66% in the moderately higher category.

So again, as you think about what has happened, certainly relevant, of course, always thinking about what will happen, also quite relevant. So, getting some clues here now, again, can you trust a central banker and all sorts of other things like that, but we will just look at these responses as they are. And number three, how do you expect global central bank holding gold holdings to change over the next twelve months? And here we are in 2024, you see 81% are calling for an increase, which has risen pretty steadily, obviously back in 2020 when Covid and everything else was happening, higher number there.

But taking that out, you can see you have an upward trend there now, how do you expect your institution’s gold reserves to change over the next twelve months? And we see that the large percentage of that remains unchanged, although from 8% imagining an increase back in 2019. Now, again, after the increase we’ve already had, you see, 29% are imagining an increase going forward. And then here we have what topics are relevant for your reserve management decisions? So here we have interest rate level, certainly a concern, and 93% concerned about that. But here, which perhaps obviously for understandable reasons, but right behind that, in fact, even a high percentage than interest rates, is inflation.

And certainly in a world where you see increasing deficits, concerns with access to resources and large portions of the globe continuing to move away from the western system, and it’s not a lot of russian oil coming over here right now. So certainly leading me to believe that we’re going to have more inflation in the future, let alone what happens with the Federal Reserve when they do eventually begin cutting interest rates, as even they have continued to forecast themselves, despite it not happening yet. And certainly we won’t go through the case for quantitative easing today, although I’m in the camp that I think that we’re still going to be seeing that, most likely in increasing amounts as we go forward.

So anyway, if inflation is a concern, then you can see it is. And if we’re going to have a lot more of it, you can extrapolate how that affects the decisions they’ll be making with gold going forward. Here we see geopolitical instability. Obviously, that’s been quite high in the past couple of years. And anyway, so those were a couple of the highlights from there. And in terms of what I said about gold versus silver comparisons, I’ve been thinking a lot about the record central bank buying of gold over the past two years. And also thinking back to when I first started looking at gold and silver.

One of the things that drew me into silver is that if you have rush of money into precious metals, silver, a, being the much smaller market, and b, the fact that 65 70% of it is consumed, which made me think if we ever see a trend back towards that direction, that certainly those dynamics would support silver. So it’s interesting though, because in aside of silver finally moving over the latter part of the gold rally, we’ve seen silver stay. I mean, it was below $20 back in 2022. And at the same time, gold where the majority of the push in the price is coming from investment demand.

So it’s like on one hand we have gold, which was continuing to do well. Again, silver has caught up to a degree, yet why hasn’t that happened in silver? And anyway, I’m going to go through a couple numbers here, because here, if we look at the World Gold Council, the supply and demand they put out, you can see the purple looks like. I wonder what Rafi would say about that. But I’m going to call that light purple and dark purple up there. So these colored bars at the bottom here that are maybe somewhere between purple and pink is central banks.

And you can see the over 1000 tons the last two years. And the green is the investment. The dark purple up here is jewelry fabrication, which I don’t know, how do I call it, industrial. But if you think of things where industry is using it outside of storing it as an investment, I suppose you could also say that within that jewelry category, that someone who purchases gold jewelry could investment be some weighting in their decision making. Certainly. But interesting to see that about half of it is going into the jewelry. So not entirely that all of it is going into an investment demand.

Yet, in either case, we see these two bars and you look at the tonnage, it’s coming up to that 2000 mark. So 2000 in 2023 and a bit over 2000 tons in 2022. For those of you who would like an exact number, I’m going to call it 2100 tons if you add those bars up in that box there. So anyway, if you take 2000 tons times 32,000 tons announced, and I used a $2,000 gold price in this, just to keep the math simple average gold price probably slightly under that over 2022 and 2023. But basically you’re looking at $128 billion per year of the last two years went into the gold market in investment form.

And versus, if you look at silver, where here we have silver Institute numbers and net physical investment, 243 millionoz, I used a number of $25 over that year as an average price and that gets you $6 billion. So we’re talking about a difference of 128 billion to 6 billion. And what’s further interesting is that if you look at where those 243 millionoz are going to, you see 118 million is US retail. So us retail now, on one hand, does it move the price? In many ways the US retail, I would say does not. Maybe there are times it does and silver squeeze.

It certainly had an impact over those couple of days. But yet, when you think about the investment demand, about half of it is US retail. And this is still totaling $6 billion versus the 128 billion on the gold side. And part of what I’ve been thinking about is that if you just looked at the. Just looking at the central banks first, where if that comes out to 70 billion, a little less than that, but 70 billion or so, and what would happen if 10% of that went into silver? Or to put some numbers on it, let’s imagine that 10% of the money that was invested into gold in either of the last two years went into silver.

Talking about 10% of 128 billion. That’s 12.8 billion versus 6 billion of what actually did go into silver investment demand. Now, again, I understand that it’s one thing to say, well, what if that hasn’t happened? Now, you could make an argument that in the same way that I don’t think many expected central banks to start setting records for gold purchasing over the last two years, do we at some point see a shift spill over into the silver market? I suppose we’ll find out. But in either case, if we did 12.8 billion over what is currently a $6 billion investment market, based on these numbers means that you’re looking at over a tripling.

So you go to six to 18.8. So it would slightly more than triple. And that’s one of the things that I think about what could really push silver to some of the bigger numbers. I know that Vince, who does our morning show, talks a lot about how he does believe that silver will eventually be added into the bricks unit basket in some capacity. Now, our guest, Matt Riley, who was on the show yesterday, who’s the one that was telling me about the unit earlier on this year I did run that by him. He is not of the school of thought that that will happen.

So again, we’ll see. Yet, on the positive side, what we’ve seen here so far. This is still, and even the rally is still before we’ve seen Americans jump into the silver market in a large way, either on the retail or the institutional level. I sometimes wonder about the average non gold or silver bug person who’s not watching videos like this. And how close are they to how close is someone who reads Paul Krugman to buying silver? I would argue that you have the price go to 50 or 100, or just the mental shift for a lot of people who are not already in a gold and silver mindset from investing into Nvidia and typical 401K stocks.

What’s the gap between there and where that person starts buying silver? I would think you’d probably need another large wave of price increases. And I wonder if we do have where inflation is just really high at some point shortly after what we’ve just gone through, and that starts to change things. I think things like Costco impact that over time as well. And in either case, if we get a source of demand, let’s call it more investment or monetary demand outside of the silver bug, certainly that and then combined with the fact that we see the deficits over the past couple of years.

So if you had something like that happen on the investment side, certainly that could exacerbate things. And either case, just interesting when you think about how much money is going into gold versus silver. Now, of course, another rather intriguing thing that has happened recently is certainly, I know a lot of you have seen that Judy Shelton has been tweeting a lot about gold and she actually did an interview with Daniela Camboni, who is now with ITM trading. And just going to play a small snippet of this because she talked a lot about the concept of a gold backed bond being issued by the US.

At one point she hypothesized how great it would be if it was launched in 2026. And then by 2076 you had the 50 year bonds come due on the 300th anniversary of the country. So either case, by all means, I highly recommend taking a listen to this. I’ll see if we can get here her on the Arcadia show here, but just going to play a small snippet of what she had to say. That was quite clever. What I see is if the US were to take the lead. See, the day I dread is when China says we are doing a gold back curve currency.

And suddenly people are very interested. I want the US to be the leader. Yes, we’re the dominant currency. And not only do we believe the United States is going to get stronger internally in terms of its internal economic, fiscal and monetary soundness, we’re going to place a bet on it. We’re putting out there, we’re putting our gold, all the gold we hold as a official gold held by the United States, backing a 50 year bond. And all we have to do with that bond is it has to perform better than the nominal treasury bonds, the traditional treasury bonds.

So again, my recommendation to go check out the whole thing. You can see title America is in a bad place. And again, this is Judy Shelton, former economic advisor to Donald Trump, who I heard is running again. And certainly it just is quite fascinating that someone in that position making comments like that. And the downside of what she says is the soundness of the US reminded me of something I had pulled up that was an article from Craig Hemke about a week or two ago. And again, nothing new here, but just pointing out what’s another trillion, what’s another five or ten? And I guess the thing that is incredible, expected all at the same time.

If you see Joe Manchin saying no one seems to care, it’s a shame. 34.6 trillion in debt, no one cares about it. And certainly, I think for everyone watching and following this stuff, I share your frustration, where at least if we were trying to find solutions and not hitting them, but certainly it’s tough to sit and watch that at times. Yet in terms of countries that aren’t looking at gold as some form of solution, I have mentioned before the Zimbabwe new gold back currency that they’ve launched. Ronan Manley had a great article about that today. And there was something at the very end that I found interesting, because he talks about how the IMF and the World bank have been involved in the adoption of this currency.

And here Ronan mentions the IMF sister organization, the World bank, where things get really interesting. For astonishingly, the Reserve bank of Zimbabwe governor John Musha van has even preemptively laid the blame on the World bank if the zig ends up failing, saying, we don’t know much about a structured currency, we got a consultant from the World Bank. A lot of things you’re seeing about the structured currency actually came from the World bank. So if you’re going to blame me, you’re actually blaming the World bank. Maybe they didn’t advise us properly, and if they didn’t advise us properly, it’s fine.

Let’s refine it. Okay. Not the most optimistic outlook on how that is going, but what is noteworthy is that we see the World bank there and their involvement again. Recently, the World bank put out their gold investing handbook for asset managers. Not too long after the Federal Reserve, the Philadelphia branch, published a note on whether we would get price stability if we were under a gold standard. So IMF and World bank involved in a currency that is now being backed by gold. And from my file that I’ve been pulling things out of from that World bank report, just some of the notes that I found really interesting.

Here’s another one. Gold has proven to be a reliable and stable investment over the medium and long term. Since the fall of the gold standard in 1971, gold has delivered an average annual rate of return around 11% with compounded annual growth rate of 8%. So that is some more thoughts from the World bank. And before we wrap up, I did just want to go through some silver data because we did get the latest India import figures on Tuesday. And unfortunately for those of you who like seeing the numbers big and putting more pressure on the deficit, did not happen in May.

Again, there was the record setting monthly figure back in February and we can see in April and maybe figure is pretty low, as you can see here in the October figure last year or February this year. It can spike at many times. And I’ve mentioned before some of the rather large numbers of solar capacity that India is looking to add. So we’ll see if there’s another spike there. If we take a look at the gold numbers, you can see in May a decent number on the gold side. So just about 85 tons there in May. And a few other notes here that you may have been seeing largely because of Bai Xiaojun, who reports a lot on silver from China.

Actually messaged him on Friday, sent me back some really interesting comments. I’m going to check with him if that’s okay to share publicly, but was also going through his Twitter feed where on June 15. So just a couple of days ago, the crisis of physical supply shortage is about to erupt. Zhang Kai is number one player and a strategic investor. So that is an interesting comment from buy on what he’s seeing in China. And again mentions here in his latest post, the vaults of the Shanghai futures exchange below 700 tons on 505 consecutive trading days. And here we see Shanghai future exchange silver stocks which were spiking.

This is close to 100 millionoz back in 2021 and which is slightly over 3000 tons, 32,000 tons in an ounce for those who a little new to that part, but down to 700 tons. Now, if we look here, here is the combined Shanghai Gold Exchange and Shanghai Futures exchange weekly silver stocks. You can see the combined were over 7500 tons, now are down under 2500. And a quick review of the LBMA, which dropped quite a bit, really, in 2022. And here you see in, let’s call that November of 2022, 840 millionoz leveled off quite a bit, a little bit lower.

832 had been down to 814 a couple months back. But anyway, in terms of the decline, we’ve seen that stop there again, this would match with what we’ve seen of Silver Institute reporting a deficit and perhaps some more of the metal coming out of the chinese exchanges, where certainly there is a lot of the industrial demand. And lastly, of course, if we take a look at the Comex sitting there at 63 again, here is the peak back in 2021 during the silver squeeze, and had gotten below 30 millionoz a couple of times, and has had more silver in there soon.

So July cycle coming up soon enough. So we will see if there is a reversal. But at least at the moment, the registered stockpile is not on the lower side. And with that said, yes, I think that is just about it for today. Although I did want to thank silver Viper minerals, who brought us today’s show. Our monthly guest, Steve Cope, who always gives us some commentary on not just what’s happening economically and with silver, but also some of the dynamics within the silver mining industry. And silver Viper has been advancing its LA, Virginia project in Sonora, Mexico.

And they do have a resource out. They have ounces that have, could be added to that resource from work they have done since the resource came out. The key for them is getting back out and drilling. And they did do a financing that got them part of the way there about a month and a half ago. And I know there are some people who were not clear on exactly where things stood. Fortunately, I did catch up with Steve Cope to go through specifically that. And you can find out more directly from Steve by just clicking on the video that is coming your way now.
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central banks gold holdings concept of gold-backed decrease in US dollar-denominated reserves geopolitical instability and gold investment gold versus silver investment increase in gold reserves inflation concerns influencing gold investment potential impact of shifting investment from gold to silver potential silver price increases silver addition to BRICS unit basket tripling the silver investment market World Gold Council survey findings

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