Gold's Breakout: It's Not the Inflation -Daily Reckoning

1.26.23 - Gold's Breakout: It's Not the Inflation

Gold last traded at $1,929 an ounce. Silver at $23.91 an ounce.

Most assets have a poor record over the past year. Gold is one of the few assets that posted a gain - not a major gain, but a gain.

Gold has really taken off since late October, from below $1,630 to almost $1,930 today. That's a major move. What's going on?

You might want to argue that it has to do with inflation. The trouble with that argument is that (official) inflation has been coming down for the past few months. Meanwhile, gold seemed to massively underperform with respect to the very serious inflation we saw earlier last year.

So again, why are we seeing a gold spike now? The most likely answer lies with central banks and geopolitics.

Central banks as a whole, led by Russia and China, purchased 399 metric tonnes of gold in the third quarter of 2022. (Fourth-quarter data are not yet available.)

That's the most gold ever purchased by central banks in a single calendar quarter. It represents over 1% of all the gold held by all central banks combined.

If that pace continues or increases, it would amount to an increase of over 4% per year in central bank gold reserves.