A gold investment is soon to become one of the main ways in which the State Treasury will accumulate funds! This precious metal is protected against inflation of the US dollar. Consider these facts: Twenty-one central banks, the majority located in Europe, are part of the Central Bank Gold Agreement (CBGA). This agreement, formed in 1999, was put in place to “balance” the gold market by coordinating gold sales among the various banks. Through 1999, gold had primarily been in a bear market for almost two decades, and central banks were consistent sellers during that time. The agreement was designed to control ongoing sales and keep prices from dropping, which would affect the value of each bank’s remaining reserves. As a result, total sales and individual sales today have limits by member countries.
The agreement was renewed three times, in 2004, 2009, and 2014. Each time the contract was rebuilt, the limit on sales became less stringent. The fourth renewal expires on September 26, 2019. Recently, the Central Bank Gold Agreement (CBGA) members decided against renewing the contract because they are no longer selling gold. For the past eight years, central banks have sold limited amounts of gold, and they continue to do so at these low levels. Central banks are now net buyers of gold. As a matter of fact, since 2007, global gold reserves have risen. In addition, for the past nine months, purchases by central banks have exceeded over 400 tons. This a record-breaking! To summarize, gold is now elevated by the central banks from a tier three asset to a tier one asset, which means ZERO risks! As well, there were changes in the Basel III international banking regulations that took place on March 29, 2019. The Bank of International Settlement (BIS) now recognizes central bank gold holdings as a reserve asset equivalent to cash. Before this, gold was considered a tier three asset, which meant its value was reduced by 50%.Now that central banks are net buyers, this continues a domino effect on other countries like China and Russia, for example. They both now possess an unrelenting incentive to buy gold—Russia for managing ongoing sanctions, and China for dealing with the current trade and currency wars. Regardless of their reasons to buy gold, the net effect is still the same: they see gold as a currency diversifier and protector and continue to load up. Combined, Russia and China own 134.16 million ounces of gold (Russia accounts for 20% of gold reserves while China accounts for 3%).
Current Economic Signs Driving the Demand for Precious Metals
There are a number of recent economic signs that may be easily overlooked in the midst favorable unemployment numbers, increased consumer spending, and success by the government in a number of political goals. Consumers and investors would do well to consider early precious metals investing given some clear economic warning signs:• Bond Investors. Bond investors are capitalizing on short-term yield, which produces an inverted yield curve. Historically, this indicates a potential recession.• America-Based Production. While great strides are being taken to return outsourced jobs back into the US, the purchasing managers index (PMI) is on the fence. The US saw only a .4% growth rate in July and undergrowth in August, another sign of recession.• Corporate Revenue Forecasts O . Analysts had forecasted corporate earnings to increase in the 10% range while they are now revised to only a 2-3% increase due to recent trade wars and concerns in the global economy.
- GDP Growth Slowdown. While 2019 has shown record growth, a more recent slump shows a GDP growth slowdown. The last period of record GDP growth was in July 2018 (see tradingeconomics.com).
- Stock Market Fluctuations. The stock market has shown radical ups and downs since late last year, and continuing corrections may or may not be a cause for worry.
- National Debt On the Rise. The national debt continues to rise (recently as much as 2%, or $450 billion, in one month). This ever-increasing national debt in turn prompts the government to respond with actions (such as printing money or borrowing in the neighborhood of $814 billion before the end of the year) that place the US economy at even greater risk. By comparison, gold and silver mine supply this year is only $180 billion.
More Thoughts on Precious Metals
Historically, investors and consumers alike have found gold and silver the most valuable of the metals. You may be asking yourself why you would want to own a small piece of the precious metals pie. Below are more reasons why to invest in precious metals now:
- Currency today is not always stable, and our own government is at times responsible
- Precious metals are objective in terms of value while the US dollar is subjective
- Inflation is inevitable at one period or another
- The nation’s huge deficits will likely be monetized
- The rarity of precious metals is high while the almighty dollar is printed at will
- Precious metals have historically shown great economic value
- Gold this year is hitting five-year highs
In addition to these points, the most common reasons cited for purchasing precious metals are: 1) hedge against inflation, 2) make an investment that can be easily sold when prices go up, 3) insurance for your financial portfolio, and 4) diversify your financial portfolio to include valuable and tangible precious metal. This bulleted list offers at least seven more reasons to diversify! Hedge, invest, diversify, or insure? There are many solid reasons to rethink your existing financial mix, and it may be time to do the unexpected. Consider these thoughts on a precious metals investment:
- Protect the assets you’ve made
- Look at today’s prices as an incentive
- Consider a more tangible asset
- Find a loyal precious metals business to help you make the best decisions
- Follow your heart on the matter to insure your assets
Precious Metals Investment Options
There are a number of attractive options to choose from once you decide to diversify with precious metals, and now is a great time to consider them. Become a central bank for yourself and your family. The central banks have abandoned coordinated gold sales because they now see gold as a tier one asset. This transitions to aggressive buyers of the commodity, which in return represents today’s prices and continues to grow as a long-term effect. Be your own central bank and prepare for what might be heading our way. Today’s economy is driving consumers and investors with a new take on precious metals. Contact the Reagan Gold Group for an honest discussion about your options.