Gold: What "Colossal" Central Bank Buying May Mean
by Bob Stokes
Updated: February 09, 2023
Central banks have been scooping up gold with a vengeance.
Here's a Jan. 31 Financial Times headline:
'Colossal' central bank buying drives gold demand to decade high
Interestingly, just a few days later on Feb. 3, the precious metal dropped by more than 2%. But setting aside near-term price moves in gold, what you need to know is that government is nearly always the last to act on a financial trend. In other words, when government acts, a financial trend is either nearly or already over.
In the case of gold, consider that central banks were furiously buying it in mid-2011. As you may recall, gold had been strongly rallying. Well, just three months later in September of that year, gold hit a top and fell 46% during the next four years.
Going back in history a little further to around 1999 and 2000, there was the gold selling episode which amusingly came to be known as "Brown's Bottom" -- referring to Britain's Chancellor of the Exchequer at the time, Gordon Brown.
Brown was fervently selling from Britain's gold reserves after gold had been in a multi-year downtrend.
You no doubt know the rest of the story: After Brown's gold selling, the precious metal then entered a multi-year uptrend.
But let's get back to the present, namely, an instructive chart and commentary from our recently published February 2023 Elliott Wave Financial Forecast:
Central banks are so confident that gold prices will continue rising that they are committing generational amounts to its purchase. Central bank behavior is not a short-term timing tool, but it does provide key input for judging sentiment, which appears strongly bullish.
If you would like to get near-term analysis of gold, as well as more of this broader perspective, you can find it in our Financial Forecast Service.
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Investors Show "Renewed Appetite" for Speculation
Besides the rally in the broad stock market -- investors have even been jumping back into meme stocks -- and that's after a 97% plunge in the Meme Stock Index.
The point is: Investors are embracing high-risk -- again.
As our recently published February Elliott Wave Financial Forecast says:
Options traders are betting heavily on the rally as total call volume surged to a new all-time record of 40 million [on Feb. 2].
Does this mean the bull market is back?
Get our insights -- plus, Elliott wave analysis of gold, silver, the U.S. dollar, bonds and much more -- by following the link below.
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