Goldman Says Central Banks Gobble Up 20% of Global Gold Supply

(Bloomberg) -- Central banks are consuming a fifth of the global supply of gold, signaling a shift away from the dollar that’s bolstering the case for owning bullion, according to Goldman Sachs Group Inc.

“De-dollarization in central banks - demand from central banks for gold is biggest since the Nixon era, eating up 20% of global supply,” Jeff Currie, the head of global commodities research at Goldman, said in a Bloomberg Television interview Monday. “I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization.”

Goldman Says Central Banks Gobble Up 20% of Global Gold Supply

Last week, Goldman analysts including Sabine Schels said investors should diversify their long-term bond holdings with gold, citing “fear-driven demand” for the precious metal.

Bullion climbed to a six-year high in September as the Federal Reserve cut borrowing costs and the total pile of debt yielding less than zero climbed to a record $17 trillion, boosting the appeal of non-interest bearing gold.

Goldman Says Central Banks Gobble Up 20% of Global Gold Supply

Hedge funds and other large speculators boosted their bullish bets on the precious metal by 8.9% in the week ended Dec. 3, government data showed Friday. That’s the biggest gain since late September.

“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman said in a note Friday. “We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand” for bullion as a defensive asset.

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Gold has fallen about 6% from its peak in September in the spot market. The precious metal rose 0.1% to close at $1,461.68 an ounce at 5 p.m. in New York.

While Goldman said the correction in bullion prices has further room to run, the bank is still sticking to its forecast prices will climb to $1,600 over the next year.

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