Since the start of 2022, central banks have broken more gold-buying records than ever before. China, one of the consistent leaders in the gold-buying game, continued its five-month purchasing spree by adding another 18 tons to its reserve in March. Since last November, the People’s Bank of China has purchased a whopping 120 tons of gold, according to Krishan Gopaul, a senior market analyst for the World Gold Council.
“Total gold reserves now amount to 2,068 tonnes,” Goupal revealed in a Twitter comment.
While 2022 may have marked a record year for net central gold purchases, 2023 may quickly break that record. So far this year, central banks are purchasing more gold than in the last 13 years. January and February’s net reserve totals depict the highest figures on record since 2010, breaching last year’s starting months.
China added 25 tons to its reserves in February, the largest single purchase during the month. After viewing March’s figures, it’s clear the trend isn’t ending any time soon.
Many analysts believe China’s strong presence in the gold-buying game is actively shaping the investment market. As major players like China consistently stockpile more gold, daily traders gain the opportunity to invest in something that’s growing more valuable by the day.
Bob Minter, abrdn’s director of ETF investment strategy, believes that with enough market support in the current environment, gold should breach record highs in the near future. As markets become more uncertain, gold seems increasingly appealing as the secure insurance policy for central banks and investors alike.
China’s latest gold prices saw their highest monthly close on record after a 7% rise last month. As the nation continues its attempts to build international credibility and strength for the yuan, we can expect to see further gold stockpiling each month. China wants to devalue the U.S. dollar as the world currency, and one way to do so is giving rise to gold.
The dedollarization trend is nothing new, nor do analysts expect it to dissolve soon. Paul Wong, a market analyst at Sprott, believes dedollarization offers necessary traction for gold performance, though central banks must proceed carefully with balanced portfolio diversification.
“If you are breaking into different economic blocks, and tensions arising across the board, across the political spectrum, you want to get off those U.S. dollar assets, your only choice is to buy gold,” he explains in an interview with Kitco News.
Global central bank gold reserves increased by a total of 52 tons in February alone, marking 11 months of net rises. Following February’s data release, the year-to-date figure totaled at 125 tons. “This is the strongest start to a year back to at least 2010 – when central banks became net buyers on an annual basis,” Gopaul explains in the report.
As we enter this new gold-buying spree, we’re seeing a new trend emerge: a multipolar world. For the first time in global history, BRICS countries’ (Brazil, Russia, India, China, and South Africa) hold on the global economy in terms of gold purchasing has surpassed G7 nations (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.). The China-centric world is buying more gold than the U.S.-centric world to shift away from the U.S. dollar, allowing other economies and currencies, such as the Yuan, to emerge.
Gold is a critical player in this monumental shift. With major gold purchases, nations like Iran and Saudi Arabia can begin developing independent economies and payment methods that aren’t reliant on the U.S. dollar.
In the first two months of 2023, Singapore led the gold-purchasing game by adding 51.4 tons to its reserves. Turkey purchased 45.5 tons, China added 39.8 tons, Russia purchased 31.1, and India added 2.1.
According to reports, both the Central Bank of Russia and the People’s Bank of China have previously purchased unreported gold to minimize currency impacts. Numerous cases of unreported central bank holding increases happened in 2022 alone. Both nations could still be holding gold off-the-books now, which would raise the above figures even higher.
Regardless of the purpose behind central bank gold purchases, the trend is clear. The more banks continue buying gold, the better the asset will perform.
“Central banks are buying a lot of gold and because there’s a lot of inflation,” Wong explains. “If you want to protect the purchasing power of your reserve currencies, gold is the one asset that can be used as an outside currency. It is fungible whether your central banking system is western based or, led by China.”
As always, investors should consult their financial advisors before making any portfolio decisions.