31 January 2023

Central Bank Gold Demand Rose at the Fastest Pace in 55 Years, Analyst Says Silver Could Outperform Gold in 2023

According to a myriad of reports, the People’s Republic of China has been buying hoards of gold during the last year. Consequently, World Gold Council (WGC) statistics show the demand for gold by central banks has risen at the fastest pace in 55 years. Meanwhile, Wells Fargo’s head of real asset strategy, John LaForge, contends that when silver starts outperforming gold, it usually signals it is “closer to a bull market in precious metals versus the other way.”

The World’s Central Banks Are Hoarding Large Sums of Gold, China Recently Purchased 32 Tons of the Precious Metal

Precious metals like gold and silver are ending the year a lot higher in value than they were 56 days ago on Nov. 3, 2022. Close to two months ago, on that day, a troy ounce of .999 fine gold was trading for $1,629 per unit and today, prices are 11.48% higher at $1,816 per ounce. A troy ounce of .999 fine silver was trading for $19.45 per unit on Nov. 3, and it’s increased 23.29% higher against the U.S. dollar at $23.98 per ounce.

World Gold Council (WGC) data shows that while there’s been a rise in retail demand, central banks are hoarding gold at an extremely fast pace. A number of reports citing WGC data show that the central banks’ current demand for gold has risen at the fastest pace since 1967. China recently disclosed that the country purchased 1.03 million ounces of fine gold or the equivalent of 32 tons of the precious metal. China’s State Administration of Foreign Exchange detailed the purchase cost the country around $1.8 billion.

China has a reported 63.67 million ounces of gold, which is worth roughly $112 billion. Adrian Ash, the head of research at Bullionvault told Financial Times (FT) reporter Harry Dempsey that the central banks’ flight to gold may suggest “the geopolitical backdrop is one of mistrust, doubt, and uncertainty.” While China is among gold reserve giants like Germany, the U.S., Russia, Italy, and France, a number of smaller central banks have also been buying large quantities of gold. To single out a few specific examples, Turkey, Uzbekistan, and Qatar have accrued substantial sums of the precious metal in 2022.

Wells Fargo Real Asset Strategy Analyst Says Silver Is Signaling a Possible Precious Metals Bull Market Breakout

Wells Fargo’s head of real asset strategy, John LaForge, is looking at silver ahead of gold according to his recent commentary with Kitco News on Dec. 29. “I am a little more positive on silver now that we are back to $23. It is the high-beta play. Silver is showing signs that whatever weakness we see in gold, it is probably short-lived,” LaForge told Kitco’s Anna Golubova.

“When silver starts beating gold, it is closer to a bull market in precious metals versus the other way,” the Wells Fargo executive added. LaForge believes gold prices will be anywhere between $1,900 to $2,000 in 2023, and he insists it’s quite possible silver could outperform the yellow precious metal.

“Over a supercycle, which is 10+ years, percentage-wise, silver does better than gold,” LaForge remarked. “That’s what happened during the last cycle between 1999 and 2011. That is typical … You can sense gold wants to go higher next year. Gold had a rough two and a half years,” the Wells Fargo executive further elaborated.

“In the last couple of months, with all the talk about the Fed pivoting, gold started to perk up. Next year, both gold and silver will do well. Silver might do even better,” LaForge concluded. So far, with a 23.29% increase compared to gold’s 11.48% jump since Nov. 3, silver is doing a lot better than gold against the greenback. Platinum, too, has jumped a great deal, rising from $915 per ounce 56 days ago to today’s $1,051 per ounce.

What do you think about the central banks’ demand for gold in 2022? Let us know what you think about this subject in the comments section below.

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