Analyzing the Substantial Growth of MAS’ Gold Holdings in 2023

The Monetary Authority of Singapore (MAS) increased the value of its gold holdings by nearly 250% this year alone, boosting the value of its physical holdings of precious metals by 50%. Based on data regarding the central bank’s foreign currency liquidity and monthly international reserves, MAS purchased gold during all but one of the first seven months of 2023. Both the central bank’s physical holdings and its physical holdings’ value have increased since.

At the end of December 2022, the value of gold holdings in MAS’ portfolio came to $1.3 billion. By July 2023, this figure spiked by 249% to $4.6 billion. The Monetary Authority of Singapore increased its gold holdings by 48% from 4.9 trillion ounces last December to 7.3 trillion ounces by late July this year.

“The increase in gold holdings is much larger in volume than in volume terms as we account for our physical gold holdings at cost,” a spokesperson from the central bank explained in an interview with AsianInvestor.

“A large part of our gold holdings in volume terms was acquired when MAS was first established, and gold prices have increased significantly since then. The change in gold holdings does not constitute a large proportion of the OFR [official foreign reserves] portfolio.”

While MAS’ gold purchases may seem high this year, the precious metal still only accounts for 2% of the central bank’s total reserves, which is on the lower end of the average spectrum. Based on historical data, central banks used to dedicate around 30% to 80% of their reserves to gold, though the average sits closer to 10% today, meaning Singapore still has plenty of room for growth.

However, Singapore is not the only central bank increasing its reserves lately. China, Poland, and other major players have been capitalizing on the rising gold prices, hopping on the de-dollarization trend, and moving toward the shiny precious metal as inflation runs rampant on a worldwide scale.

Gold excelled at the beginning of 2023 despite the rising interest rates. With looming recession fears and banking institutions crumbling around the globe, investors and central banks alike turned to the precious metal to protect their finances, allowing it to gain 5.4% during the first six months of the year, closing June above $1,900 per ounce.

“Gold outperformed all other major assets apart from developed market stocks,” the World Gold Council’s mid-year report stated.

Numerous factors drove gold’s performance this year, including risk hedging, high demand levels from central banks, and uncertainty around the U.S. dollar.

Central banks hold approximately one-fifth of all gold ever mined, according to the World Gold Council. Gold provides central banks with easy liquidity, security against inflation, and return potential.

“Central bank gold buying decisions are difficult to predict, but in general, we believe that central banks will continue to be net buyers of gold for the remainder of this year,” Shaokai Fan, the global head of central banks at the World Gold Council, explained.

An insider told AsianInvestor that central bank gold demand typically accounts for around 10% to 15% of annual gold demand, “However, this jumped significantly to 23% in 2022.”

The People’s Bank of China has purchased gold every month since November 2022, marking a 10-month buying streak. The next most significant buyer would be Poland, on its path to buying 100 tons of gold to complete its strategy of preparing for the worst-case scenario of economic events like a global recession.

The investment demand sector, including retail and standard investments, typically accounts for 20% to 40% of annual gold demand levels. 2023’s persistent economic uncertainty and geopolitical tensions are doing an excellent job of ensuring investors keep gold in their investment portfolios as a safe-haven strategy.

“Planned purchases are primarily driven by increased buying of domestic gold production, rebalancing reserves to a more preferred strategic level, and concerns like financial crisis risks and high inflation,” Wei Li, a solutions portfolio manager at BNP Paribas Asset Management, explained.

With high interest rates expected to last into 2024, central banks are providing critical support to gold prices right now as investor demand comes to a lull. Central banks, like the Monetary Authority of Singapore, are continuing to see gold as the asset of choice, according to the World Gold Council’s 2023 survey.

As developing countries seek gold for economic development, major nations use it to weaponize the U.S. dollar, and other central banks stockpile it for safety purposes, the precious metal enjoys pricing support. As always, investors should consult their advisors before making any portfolio decisions.

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