Gold is proving to be gaining prominence among the global central banks as the United States dollar’s popularity fades, according to a May 5 World Gold Council (WGC) report.
Global gold demand reached 1,174 tonnes in the first quarter of 2023, with a considerable surge in central bank purchases, based on data from the WGC.
Particularly, central banks globally increased their gold reserves by 228 tonnes in the first three months of the year, with China, Singapore, and Turkey among the nations that increased their gold reserves the most.
Analysts are convinced that the role of gold as a haven asset continues to increase against the backdrop of persistent geopolitical tensions, a banking crisis, and a severe economic environment.
The U.S. quantitative easing policy increases fears about the loss of buying power of holding US bonds, while the Russian overseas assets freeze sanctions caused more fears among non-US allies, based on a statement by the chief economist at Nanhua Futures, Zhu Bin. Zhu stated:
“[Global] central banks purchasing gold assets in fact reflects their loss of confidence in the U.S. dollar as a safe asset.”
The gold reserves of all the central banks have increased by unexpected amounts in the first quarter, as highlighted by Wang Lixin, CEO of WGC China.
The 2008 financial crisis was the watershed event where central banks worldwide moved from “net sellers” to “net buyers” of gold. In the ten years after the financial crisis, central banks have been pumping up their gold reserves. By 2022, the central bank gold purchases surged to 1,135.7 tonnes, amounting to nearly 25% of global gold demand.
Buy Bitcoin NowMost central banks now see gold as a haven asset substitute for the US dollar and have purchased huge amounts of the precious metal, Zhu mentioned. He added:
“At this point, they no longer pay attention to the currency fluctuation of the U.S. dollar, nor are they concerned over whether U.S. interest rates are falling or rising. They focus on security more than the economic viability.”
The WGC projects that central bank gold purchases will be the ‘cornerstone’ that supports gold demand for the entire year. Nevertheless, it might not exceed the historical high in 2022.
