Are Central banks promoting gold investing?

Many central banks, such as the Bank of Italy and the Central Bank of Uzbekistan (CBU), have started putting several measures in place to popularize gold-buying amongst their citizens. Bank of Italy, for instance, is now actively promoting gold on their website:

“Gold is an excellent hedge against adversity and high inflation. Gold cannot depreciate or be devalued. Gold … is not an asset ‘issued’ by a government or a central bank and so does not depend on the issuer’s solvency.” 

Since November 2020, the Central Bank of Uzbekistan has been issuing sealed gold bars with a QR code that allows for real-time verification. Their intention is to stimulate the use of gold as a store of value and promote the circulation of gold. Everyone can verify the authenticity of the gold by scanning the QR code, which enhances trust and acceptance of the gold bars.

The gold bars are sold in weights of 5, 10, 20, and 50 grams via 28 commercial banks, making the precious metal much more accessible to the public than typical gold bars and gold bullion. This will allow more people to use gold as a savings instrument or even as a payment method.

Why have Central banks started praising gold as an investment?

Other central banks and governments across the world have realized the shaky future of fiat currencies and are moving to gold to preserve the purchasing power of their funds.

We don’t have to dig deep to see the message Bank of Italy is sending: money issued by central banks has counterparty risk and can lose its value, while gold has no such risk and retains its value.

The German central bank, the Bundesbank, is on the same page. In a recently published book, Germany’s Gold, Jens Weidmann (President of the Bundesbank) writes:

“Ask us at the Bundesbank what our gold holdings mean for us and we will tell you that, first and foremost, they make up a very large share of Germany’s reserve assets … [and they] are a major anchor underpinning confidence in the intrinsic value of the Bundesbank’s balance sheet.”

The Dutch central bank—De Nederlandsche Bank—chimes in as well on their gold information page:

“Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank—it’s the anchor of trust for the financial system. If the system collapses, gold can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank’s balance sheet and creates a sense of security.”

And Banque de France:

“Key facts: Gold is a highly sought-after precious metal, considered to be the ultimate store of value.”

Are central banks preparing for a monetary shift?

That central banks are actively promoting gold and its benefits should be no surprise—why would such important financial institutions hold large gold reserves if they didn’t trust gold’s fundamental qualities? 

Indeed, central banks are not only promoting gold, they are also increasing their gold reserves:

With central banks increasing their gold holdings and praising gold publicly, you could wonder if they are preparing for a new international gold standard. Since 1954, gold traded at the London Bullion Market—the center of gold trade since the 18th century—was required to be at least 99.5 pure. Even today, many central banks are holding bars that were cast before 1954 and, thus, are currently not liquid in wholesale markets. 

However, the French, Swedish, and German central banks, among others,, have upgraded their gold reserves to meet the London Good Delivery standard and make their gold reserves wholly liquid. In other words, their gold can now be sold effortlessly should the banks decide to do so, for instance to make payments in times of changes in the financial system.

As De Nederlandsche Bank puts it: “If the system collapses, the gold stock can serve as a basis to build it up again.” That effectively means that should a new financial system be needed, it could be built around gold as a standard.

Should you invest in gold?

Across the world, gold is associated with economic prosperity, enduring value, and the ability to protect wealth. Central banks, while having the ability to print as much paper money as they want, rely on gold for security and stability and are now encouraging private investors to enjoy these long-term benefits of gold as well. 

As a result of the push for investors to buy gold and the growing interest in the precious metal, demand will rise. And as we remember from Economics 101, rising gold demand leads to higher gold prices, especially since gold supply is truly finite.

In fact, gold is predicted to set a new record this year—Bank of America’s forecast says the metal could climb as high as $3,000. If the bank’s forecast is correct, investing in gold today could grow your investment by over 50% by the end of 2021. That, combined with the protection gold offers, should be a strong reason to consider gold as an investment.