Russia is amassing huge amounts of gold right now…
In the second quarter of this year, Russia’s central bank purchased 54 metric tons (MTs) of gold. It has now outstripped China in total gold reserves.
Why the sudden buying spree?
Most likely, this is a sign that the Russian economy is reducing its dependence on the dollar and the euro, which make up the lion’s share of the country’s forex reserves.
And given the recent political sanctions imposed on Russia, the trend will probably continue.
But it’s not just Russia that’s binging on gold right now. Countries around the world seem to be losing faith in global currencies…
Global Gold Rush Commences
As you can see in the chart below, countries with unsteady political atmospheres and weak currencies have been buying up gold over the past decade.
Plus, while most developed countries haven’t been adding to their reserves, they’re still holding on to what they have acquired, and are showing little sign of letting go.
Indeed, not only does the U.S. rank No. 1 in terms of the quantity of gold it holds (over 8 million MT), but it accounts for 71.9% of our total reserves.
Switzerland feels so strongly about its gold that in 2013 the Swiss People’s Party forced a referendum on a proposal to prevent the nation’s central bank from selling any of its gold reserves and requiring it to hold at least 20% of its assets in the precious metal.
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And Germany, home to the world’s second-largest gold reserves, only keeps 31% of its gold at home in the Bundesbank in Frankfurt. Citizens feel it’s safer elsewhere, such as the United States, where 45% sits in the U.S. Federal Reserve in New York.
So what does the buying (and holding) mean for the current state of the market?
Time For You to Take Action?
This recent activity acts as a reminder that gold continues to play an important role in central bank reserves because of its universal acceptance and liquidity.
In a zero interest rate environment, there’s no opportunity cost to holding physical gold, as you aren’t forfeiting any returns from interest bearing investments, such as Treasuries or bonds.
Gold is considered a good hedge against inflation, as well as a solid defensive play in times of geopolitical uncertainty.
It’s a reliable safety net that a country can have against an impending crisis or currency meltdown.
So should you be following their lead and scooping up gold for yourself in the event that a currency crisis does come into play?
The answer is “yes.”
I’m not saying a currency meltdown is in the works. But it’s always crucial to maintain some exposure to gold.
Treasuries closely compete with gold, seeing as they’re subject to both the macroeconomic policies and performance of the issuing country, as well as its credit rating.
Gold holdings also provide an added layer of security when it comes to issues of international trade.
For all of these reasons, it’s a good idea to hold even a small percent of gold in your portfolio.