Since Russia invaded Ukraine in 2022, central banks around the world have been accumulating gold, driving the price up by over 90% over the last 3 years. According to the IMF’s latest available figures, gold’s share of global international reserves is now over 21%, up 4% year on year, which is the biggest jump in over four decades.
After such a strong run, which culminated in gold prices hitting their highest ever level of $3,500/oz in May, the gold price has been trading sideways ever since.
So, the real $3,500 question is… can this run continue? Has the gold price peaked, or is it just pausing for breath before continuing it’s climb?
As a reminder (as if you guys need reminding!) the four key factors behind our bullish stance on gold are:
- Inflation
- Weakening US dollar
- Vast government debt
- Heightened geopolitical risk
None of these factors have gone away. In fact, most of them have worsened. But, in any bull market there are always going to be moments when asset prices take a breather, and we must ask ourselves whether the asset has become overbought. Given that the average investment portfolio holds less than 1% in gold then the answer is clearly not, but what about central banks?
If history is anything to go by, as the chart above shows, central banks could increase the percentage share of gold in their reserves much higher. In fact, if the gold weighting returned to levels we saw in the 1970’s or 1980’s then $3,500 will seem like a bargain.
