Analysts Question Gold’s Safe Haven Status – 2008 Data Shows Central Banks Oversaturated Bullion Markets


Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets

After bitcoin costs dropped under the $5K area on Monday morning, gold additionally slid considerably. It noticed a small spike in worth after the Federal Reserve introduced slashing the benchmark fee by 100 bps, however gold costs subsequently dropped under $1,500 per ounce hours later. The present sentiment has led folks to query why gold hasn’t been a protected haven in the course of the financial disaster. Nevertheless, patterns from historical past and statements from analysts at the moment point out that central banks are offloading gold reserves as a way to maintain the financial system afloat.

Additionally learn: Edward Snowden ‘Felt Like Shopping for Bitcoin’ Whereas Merchants Hunt for the Market Backside

Analysts Speculate Central Banks Are Offloading Gold Reserves

Gold bug Peter Schiff has had a bone to choose with bitcoin these days as he’s taken the chance to remind everybody that the cryptocurrency just isn’t a protected haven. Although digital belongings have seen a major decline in fiat worth, gold costs have been comfortable as nicely, shedding appreciable worth over the past week. Since March 12, gold’s spot worth per troy ounce misplaced round 6.2% when it was $1,574 and at press time the value is roughly $1,476 per ounce.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Gold bug and economist Peter Schiff thinks the disaster will spark a rush towards gold. Nevertheless analysts like Worth Futures Group’s Phil Flynn say that traders are “scared” and there’s additionally hypothesis that central banks are offloading gold reserves. Schiff’s personal information publication famous yesterday that central financial institution gold purchases have slowed considerably and January’s central financial institution gold purchases have been 57% decrease than the yr prior.

Gold’s worth jumped proper after the Fed dropped the rate of interest to zero% and cryptocurrencies like bitcoin adopted the identical sample. However by Monday morning, each gold and digital currencies noticed extra losses and dropped under the help ranges seen the day earlier than. Since then, varied gold information shops have been reporting that market contributors are being cautious about shopping for right into a falling knife scenario with gold. Moreover, speculators and analysts suspect that central banks are dumping their gold reserves to avoid wasting their economies.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets

On March 16, senior market analyst at Worth Futures Group Phil Flynn famous there is perhaps a small gold spike however traders have been shaken by the market rout. “If there’s any help coming into the [stock] market, there is perhaps a bid [in gold]. However proper now, persons are operating scared, in order that they’re afraid to step in,” Flynn advised Kitco information. Flynn additionally advised the information outlet there’s hypothesis that central banks are offloading their gold. The analyst believes “central banks should promote a few of their gold reserves.” Plenty of hardcore gold bugs like Peter Schiff received’t inform you that central banks did the identical factor all through 2007 and 2008. Again when the Fed bailed out the company financial institution Bear Stearns, gold spot costs jumped significantly over $1,000 per troy ounce. Treasured steel proponents on the time would have advised you the sky was falling and that everybody ought to transfer their cash into gold. However as an alternative, central banks offloaded their gold reserves by the financial easing course of utilizing bullion banks.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
On Twitter, Peter Schiff has taken each alternative he can to bash bitcoin and cryptocurrencies in the course of the market rout.

Gold Was Purported to Be a Safe Haven After the 2007 Bear Stearns Emergency Bailout, However Central Banks Dumped Gold to Present Liquidity

Gold dropped to a low of $730 per troy ounce and on the yr’s finish it did rise to $870 an oz. However the asset misplaced roughly 13% after a large number of traders have been advised that gold would see a ridiculous bull run after the Bear Stearns bailout. Most individuals don’t notice that quantitative easing (QE) coverage can stretch its tentacles into gold markets. QE represents giant scale asset purchases and when Bloomberg or the Wall Avenue Journal publish tales on this matter they solely report on Treasury and securities purchases.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Gold wasn’t a protected haven in 2007 by 2008 after Bear Stearns wanted an emergency bailout. Central banks and bullion banks flooded the gold market and individuals who flew to the asset’s security after the Bear Stearns collapse misplaced 13% by the tip of 2007.

Central banks additionally use in a single day repo markets to amass predetermined quantities of presidency bonds, however central banks just like the Fed can do the identical factor, however with bullion banks utilizing gold liquidity. So in 2007 and 2008 when the financial system was getting ready to collapse folks puzzled why gold wasn’t an ideal protected haven. This was as a result of the Fed and varied different central banks leased their gold reserves to bullion banks which then discovered its means into spot and futures markets inflicting a worth decline or oversaturated market.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Gold could also be a long run protected haven however throughout occasions of financial hardships, central banks flood the market with their hoarded gold reserves.

Central Financial institution Gold Hoarding in 2019 Touched a 50-12 months Excessive – New York’s Elite Demand Chilly Arduous Money

Bitcoin contributors do have to fret about early traders dumping giant quantities of cash and cryptos being offered in the marketplace that stem from hacked exchanges. That is positively a priority for bitcoin holders nevertheless it’s not practically as problematic because the world’s central banks offloading their gold reserves. The cryptocurrency market cap did lose a substantial quantity of worth over the past week however the 6.2% decline within the gold market was considerably bigger by a protracted shot.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Comparatively to gold’s market cap of $three-9 trillion, the market carnage (destructive 6.2%) was a lot worse in comparison with what occurred with bitcoin costs.

Estimates say that the gold market worldwide is round $three-9 trillion so if the cryptoconomy was hit as exhausting as gold, the complete coin market cap can be cleaned. Additional, the historical past of central banks promoting gold in 2007 and 2008, plus the hypothesis from analysts like Phil Flynn, reveals that gold won’t be one of the best protected haven asset in the course of the present financial disaster. What’s much more scary for gold traders is the truth that central financial institution gold hoarding worldwide touched a 50-year excessive in 2019.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Central banks worldwide bought huge quantities of gold final yr. They’ll and have flooded the market previously as a way to assist save their economies.

In the intervening time banks are dealing with a disaster and might want to attend to greenback liquidity as money is being depleted. An instance of this difficulty might be seen in New York the place the coronavirus outbreak is far worse than most areas in America. Within the Hamptons, the place hedge fund managers and Wall Avenue’s elite personal summer time properties, there’s nice demand for chilly exhausting money proper now. Stories be aware points with ATMs and sure banks like Chase and Financial institution of America have been limiting withdrawals to $5-10Okay quantities. It’s because New York’s prosperous members are demanding money withdrawals between $30-50Okay.

Analysts Question Gold’s Safe Haven Status - 2008 Data Shows Central Banks Oversaturated Bullion Markets
Demand for chilly exhausting money might be seen proper now in the course of the coronavirus outbreak scare as hedge fund managers and Wall Avenue’s elite have been demanding giant sums of money. As a result of the wealthy within the Hamptons search $30-50Okay withdrawals, banks like Chase and Financial institution of America have restricted money withdrawals to $5-10Okay per individual.

The final time banks confronted a disaster was when the subprime mortgage catastrophe made banks notice they’d little collateral in order that they begged the Fed for emergency funds. Nevertheless it was far an excessive amount of for the Fed and the present interbank market system, in order that they resorted to options like leasing gold so non-public banks may purchase USD liquidity. The patterns of the previous point out that gold won’t be the protected haven reply to the present financial hardship. Even Peter Schiff’s information publication reported on March 16 that central financial institution gold buying was excessive in January 2020, however “the speed of purchases slowed considerably.” And even January’s web gold purchases by central banking authorities that month “represented a 57% decline yr-on-yr.” Central banks do purchase numerous gold, however they offload it and saturate the markets every time they need as nicely.

What do you concentrate on gold costs in the course of the present financial scenario? Do you assume gold will likely be a great protected haven? Or do you assume gold costs will observe an analogous sample with banks over-saturating the market with bullion? Tell us what you concentrate on this matter within the feedback part under.

Disclaimer: This text is for informational functions solely. It’s not a proposal or solicitation of a proposal to purchase or promote, or a advice, endorsement, or sponsorship of any merchandise, providers, or corporations. doesn’t present funding, tax, authorized, or accounting recommendation. Neither the corporate nor the creator is accountable, instantly or not directly, for any injury or loss brought about or alleged to be attributable to or in reference to using or reliance on any content material, items or providers talked about on this article. Worth articles and market updates are supposed for informational functions solely and shouldn’t be thought of as buying and selling recommendation. Neither nor the creator is answerable for any losses or positive aspects, as the last word choice to conduct a commerce is made by the reader. Cryptocurrency and gold costs referenced on this article have been recorded on Tuesday, March 17, 2020.

Picture credit: Shutterstock, Kitco, Goldrepublic, Wolf of Wall Avenue, Bloomberg Intelligence,,, Truthful Use, Wiki Commons, Twitter, and Pixabay.

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Jamie Redman

Jamie Redman is a monetary tech journalist dwelling in Florida. Redman has been an lively member of the cryptocurrency group since 2011. He has a ardour for Bitcoin, open supply code, and decentralized functions. Redman has written 1000’s of articles for concerning the disruptive protocols rising at the moment.

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