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Demand for gold up 42%. Why are central banks raising their reserves?

October 23, 2018 12:00

Since 2010, central banks around the world turned from being net sellers of gold to net buyers of gold. In fact, the World Gold Council (WGC) has shown that demand for gold in the first quarter of 2018 was up 42% year on year.

Central Banks raising gold reserves

So which countries are raising their gold reserves and why?

While we can't know for certain, there are some statistics that prove to be quite interesting.

For example, the Russian central bank has been the largest purchaser of gold for the past six years, which has taken their holdings to 224 tonnes in 2017. They have now also overtaken China to hold the fifth spot in having the largest gold reserves in the world.

Meanwhile, Hungary's central bank announced that the country has raised its gold reserves tenfold to 31.5 tonnes. The reason given was to 'improve the security of the nation's wealth and the reduce risks'.

And on 19 April 2018, Turkey also requested that 220 tonnes of their gold be pulled out of the US Federal Reserve system and brought back home. Other countries making similar requests of the US Federal Reserve include:

  1. Germany
  2. Netherlands
  3. Austria
  4. Belgium
  5. Russia
  6. China
  7. Azerbaijan

Why do more countries want their gold back?

When it comes to why more countries want their gold back, this is an interesting question with many possible answers. One theory is that countries around the world are trying to avoid the US dollar because of ongoing trade wars, tariffs and an uncertain political scene.

Russia and China have also been trying to win support from global governments to create a new gold-backed currency, thereby removing the US dollar as the world's reserve currency. After all, reserve currency status may not last forever as the chart below shows:

Source: Gold Telegraph 22 October 2018

At this point in time, we may not be able to pinpoint the exact outcome of central banks raising their gold reserves. However, we can still take advantage of the volatility in the gold market as the metal is available to trade with a CFD option with Admiral Markets. How can we do this? Let's take a look…

How to trade CFDs on Gold with Admiral Markets MT4

First, let's take a look at the 12 month gold chart:

Source: Admiral Markets MT4 Gold, Daily - Data range: from 1 August 2017 - 22 October 2018 - performed on 22 September 2018 at 2:36 PM BST

From the chart above we can see there are times gold ranges and trends. In a range, gold will trade in between two price points, struggling to break out of its range. In a trend, we would see prices accelerate for a sustained period higher or lower.

There are a variety of strategies to trade trend-based market conditions as well as range-based market conditions. Let's focus on the most recent range-based market conditions as highlighted by the chart below:

Source: Admiral Markets MT4 Gold, Daily - Data range: from 4 July 2018 to 22 October 2018, Accessed: - performed on 22 October 2018 at 2:41 PM BST

In the chart above, we can see that the gold market was contained in a range known as a consolidation, wedge or triangle formation. New price highs kept on getting lower, while new price lows kept on getting higher. This pattern suggests that at some point the market will break out and move in a directional manner up or down.

In this instance, the gold market broke higher, penetrating the upper resistance level of the consolidation pattern. A trader could have bought as the market broke through this resistance line at the $1,202 price level on the 11 October 2018, with a stop loss at the lowest price of the breakout day $1,191.

Trading at the lowest lot value for gold, 0.1 lots, then if the entry price was triggered and then hit the stop loss, the trader would have lost USD 110. In this instance, the stop loss was not hit and if the trader held on to previous resistance at $1,222 (July 2018 lows), the approximate profit would have been USD 200 reached on the same day as entry, 11 October 2018.

Keen to experiment with your own trading theories? See how a potential trade might pay off with our free trading calculator. Otherwise, sign up for a free demo account.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.