To The Moon

Guess who's been buying up gold? The world's central banks!

$Gold - main 2404(GCmain)$ , along with U.S. stocks, and Bitcoin hit record highs last week.

Spot gold prices shot up from $2,119 per ounce on Monday to $2,195.23 during Friday's trading.

And not just the dollar, three-quarters of the major developed and emerging market currencies saw their gold prices hit 50-year highs.

According to Kitco News' weekly gold survey, both Wall Street and Main Street are predicting that gold prices will either rise or at least hold steady next week.

Mark Leibovit, publisher of the VR Metals/Resource Letter, summed up the outlook for gold in two words: bull market.

But Christopher Vecchio, the head of futures and forex at Tastylive.com, said "sideways" is the keyword. His advice? Buy the dips until there's a sign of a trend change, but there's no indication that gold's trend will shift anytime soon.

But there is something odd about this spike in gold prices. In the short-term, gold stocks are still snoozing and silver isn't joining the party. And if you look at the longer term, gold ETFs, which have a big impact on prices, have been seeing outflows in recent months, while the dollar and real yields have been stable.

The largest gold holdings are in the jewelry sector, followed by private investments like ETFs, bars, and coins, and then central bank reserves. By process of elimination, it's clear that official institutions - aka global central banks - are the main drivers of this recent gold rally.

Sean Lusk, the co-head of commercial hedging at Walsh Trading, believed that the rise is being driven by sovereign buying. China is quietly supporting the gold market by continuing to add to its gold reserves. And many other countries' central banks are buying gold to boost their currencies, and this trend is still ongoing. With so much uncertainty in the world, it's hard to ignore the role of central banks in the stock market and gold hitting record highs simultaneously.

Over the past six months, China, Germany, and Turkey have been the biggest sovereign buyers of gold, and China's gold holdings may be much higher than official figures suggest.

So why are central banks stockpiling gold, or rather, ditching the dollar? Besides the wakeup call from the weaponization of the dollar during the Russia-Ukraine war, the US's fiscal deficits and the potential depreciation of the dollar are also big factors. According to purchasing power parity, the dollar is structurally overvalued against major emerging market currencies and could see a significant depreciation in the coming years.

Powell recently reiterated that the Fed will cut rates this year, seemingly not too worried about inflation. And gold ETF investors seem unfazed by inflation and dollar depreciation risks. But other central banks have a completely different view, and buying gold is one way they're showing it.