Although no one can absolutely predict how these megatrends will influence prices, these factors represent bullish fundamental drivers for the major precious metals.
1. Central Banks Building Gold Reserves
Gold has been recognized as sound money throughout time. There are many reasons for gold's monetary status, including its rarity and limited supply. Nearly every major culture values gold as a symbol of wealth – and for hedging against failing currencies.
When governments overspend or overprint, their currency decays. As the value of unbacked currencies bleeds away, demand for investing in precious metals, especially gold, tends to rise.
Around the Great Depression, 1929 to 1934, the gold price in the United States rose from $20.67 to $35 per ounce in conjunction with President Roosevelt's dollar devaluation. Subsequently, the yellow metal skyrocketed in the 1970s and has remained in a long-term uptrend.
Central banks were usually net sellers of gold from the late 1970s until 2010.
They even created the Washington Agreement on Gold in 1999 as a mechanism for coordinated gold selling among central banks.
But that net selling has turned to net buying since 2010 and has accelerated. In fact, central banks bought more gold in 2022 than any year in a half a century, and 2023 is looking no different.
Central banks are accumulating gold due not only in response to economic uncertainty, but also to hedge against weakening currencies, diversify their portfolios to mitigate risk, insure against U.S. capital controls, and safeguard national financial systems.