Gold: What "Colossal" Central Bank Buying May Mean

 

"Central banks are so confident that gold prices will continue rising that they are..."

By Elliott Wave International

Central banks have been scooping up gold with a vengeance.

Here's a Jan. 31 Financial Times headline:

'Colossal' central bank buying drives gold demand to decade high

Interestingly, just a few days later on Feb. 3, the precious metal dropped by more than 2%. But setting aside near-term price moves in gold, what you need to know is that government is nearly always the last to act on a financial trend. In other words, when government acts, a financial trend is either nearly or already over.

In the case of gold, consider that central banks were furiously buying it in mid-2011. As you may recall, gold had been strongly rallying. Well, just three months later in September of that year, gold hit a top and fell 46% during the next four years.

Going back in history a little further to around 1999 and 2000, there was the gold selling episode which amusingly came to be known as "Brown's Bottom" -- referring to Britain's Chancellor of the Exchequer at the time, Gordon Brown.

Brown was fervently selling from Britain's gold reserves after gold had been in a multi-year downtrend.

You no doubt know the rest of the story: After Brown's gold selling, the precious metal then entered a multi-year uptrend.

But let's get back to the present, namely, an instructive chart and commentary from our recently published February 2023 Elliott Wave Financial Forecast:

Central banks are so confident that gold prices will continue rising that they are committing generational amounts to its purchase. Central bank behavior is not a short-term timing tool, but it does provide key input for judging sentiment, which appears strongly bullish.

If you would like to get near-term analysis of gold, as well as more of this broader perspective, you can find it in Elliott Wave International's flagship Financial Forecast Service.

Or you can apply Elliott wave analysis to gold's price chart yourself -- as well as other financial markets.

If you're unfamiliar with the Elliott wave model, read Frost & Prechter's book, Elliott Wave Principle: Key to Market Behavior. Here's a quote:

The practical goal of any analytical method is to identify market lows suitable for buying (or covering shorts) and market highs suitable for selling (or selling short). When developing a system of trading or investing, you should adopt certain patterns of thought that will help you remain both flexible and decisive, both defensive and aggressive, depending upon the demands of the situation. The Elliott Wave Principle is not such a system, but is unparalleled as a basis for creating one.

Learn more by reading the entire online version of the book for free. That's right -- you can access Elliott Wave Principle: Key to Market Behavior for free once you become a member of Club EWI -- the world's largest Elliott wave educational community.

A Club EWI membership is also free and members get complimentary access to a wealth of Elliott wave resources on financial markets, investing and trading.

Join Club EWI now (no obligations as a member) by following this link: Elliott Wave Principle: Key to Market Behavior -- get free and instant access.