For most economic goods, a rising price results in a lesser quantity of those goods being demanded. Conversely, a falling price often results in a greater quantity of those goods being demanded. But that’s not always the case.
Other factors aside from price play a role in demand for many goods, and sometimes those factors outweigh the impact of rising or falling prices. Indeed, that’s what’s happening today with gold, as despite the rising gold price, gold demand continues to increase,with central bank gold buying a significant contributor to that.
Overall, central banks are buying gold at a record pace, with central bank gold purchases in the first half of 2023 coming in at a record high level. This comes despite major sales by the Turkish central bank.
Turkey has had currency instability for years, which has helped strengthen demand from Turkish consumers for gold. In a bid to curb gold imports, the Turkish central bank earlier this year sold over 130 tons of gold into the local gold market. Yet despite this major sale drawing down overall central bank gold purchases, central banks are still buying gold at a record pace.
We have to think that central banks are trying to shore up their financial position ahead of any potential recession by buying gold. These gold purchases aren’t normally large purchases by single central banks either. This gold is being purchased by numerous central banks around the world.
One of the most curious aspects of this central bank gold buying is that it comes at a time when gold is still not that far off its record highs. Gold is still over $1,900 an ounce, and broke the $2,000 barrier earlier this year. Yet central banks can’t get enough of it. And they’re not the only ones.
Not Just Central Banks Buying Gold
Demand for gold from the jewelry industry often sinks when the gold price increases. That’s understandable, as rising gold prices raise the cost of producing gold jewelry and result in fewer jewelry sales or declining profit margins.
Yet year on year gold demand from the jewelry industry is still up, with gold consumption from the jewelry industry increasing 3%. Where exactly that demand is coming from is unclear, but it could be that some areas of the world that traditionally own gold jewelry as an investment are boosting their demand for gold jewelry.
One of the strongest areas of growth for gold demand over the past year has been investment demand, which is up 20% year on year. That’s driven largely by demand for gold coins, as demand for gold bars is down slightly.
Investment demand for gold slowed significantly in the third quarter of last year, which could be due to seasonality issues, so it will be interesting to see how gold demand does in the third quarter of this year. Demand was slightly lower in the second quarter of this year compared to the first quarter, which could be the result of high gold prices. But demand this year could very well end up outpacing last year.
Millions of Americans are currently trying to protect themselves and their finances against the possibility of recession, and they’re looking for gold to do that. Even if gold prices remain high, investment gold demand could remain strong throughout the rest of the year.
Why Buy Gold?
Gold has a reputation as a safe haven asset and store of value that goes back centuries. Most major world currencies were once defined as units of gold, and paper banknotes could be converted into gold on demand at banks.
Everyone understood that gold was real wealth, and that all else was ephemeral. Read stories of those who survived the Weimar hyperinflation, for instance, and it becomes clear that those who owned gold and silver, or who held foreign currencies that were redeemable in gold and silver, fared better than those who put their trust in paper money.
With over 50 years of an unprecedented fiat currency system behind us, many people have forgotten that gold still underpins much of the global financial system. There’s a reason governments and central banks still own thousands of tons of gold, and it isn’t just because they like shiny things. They understand that if the whole monetary and financial system comes crashing down, it may very well have to be rebuilt with the support of gold.
But gold isn’t just something that central banks, governments, and large financial institutions can hold. Everyone can own gold and can make gold a part of their financial planning.
There are numerous ways to own gold, with gold coins being one of the most traditional. There’s a reason gold coins make up a significant portion of gold investment demand, because they’re the average man’s easiest chance of owning gold.
Very few people have the ability to buy a 400-ounce gold bar. But anyone can buy gold coins from a local coin shop, online marketplaces, or from trusted gold sellers like Goldco.
You can buy those gold coins with a direct cash purchase, or you can buy gold coins with a gold IRA. A gold IRA can be funded with assets from existing tax-advantaged accounts such as a 401(k), 403(b), TSP, IRA, or similar accounts.
You can transfer or roll over assets from your existing tax-advantaged accounts into a gold IRA tax-free, then use that money to buy gold coins or gold bars. A gold IRA is subject to the same regulations as any other IRA account, and offers the same tax advantages as any other IRA account.
Gold IRAs are becoming increasingly popular as a way to protect retirement savings or to make use of assets in neglected or underperforming retirement accounts. Goldco has helped thousands of customers benefit from buying gold with a gold IRA, and has made over $2 billion in precious metals placements. Call Goldco today to learn more about how you can help protect your hard-earned savings with gold.