China’s central bank purchased 15 tons of gold last month, continuing a three-month trend of strengthening its reserve. In November of 2022, the People’s Bank of China bought 30 tons, and in December, it purchased 32 tons. “This takes its total gold reserves to 2,025 tons,” Krishan Gopaul, a World Gold Council senior market analyst, explains.
Before these hefty purchases, China hadn’t nourished its gold reserves since 2019. The bank purchased more gold in the last three months than it has in the last three years.
Analysts expect China’s central bank to continue its gold-buying frenzy throughout 2023 to boost international credibility, stabilize the yuan’s global strength, and threaten the U.S. dollar’s success as a worldwide currency. The yuan is the People’s Republic of China’s official currency that’s currently the fifth-most traded currency in the world. One Chinese yuan is currently worth approximately $0.15 in U.S. dollars.
In attempts to strengthen the yuan’s global power, China began urging Middle Eastern nations to accept the currency for oil exchanges last year. Given that China is the world’s largest oil supplier, more pushes in this direction could easily increase the global trading power of the yuan.
The de-dollarization movement gained more traction with Russia’s invasion of Ukraine. In response, more central banks increased their gold reserves. According to the World Gold Council, central banks purchased a total of 1,136 tons of different precious metals in 2022, showing the largest total purchase amount since 1967.
The People’s Bank of China’s last gold shopping spree between 2002 and 2019 yielded approximately 1,448 tons of gold. If the bank’s current buying rates continue for a few more years, gold demand will skyrocket, and so will prices.
As the global de-dollarization movement continues in strides, so will gold demand. As central banks move away from fiat money, they move toward more reliable and valuable assets that gain value over time, even during poor economic periods. Gold is a life preserver amidst a sea of soaring inflation rates, questionable political movements, stock market crashes, debt crises, and global currency wars.
“Emerging markets central banks, on average, have something like two-thirds of their reserves in dollar-denominated assets and less than 5% in gold. And they want to change that ratio. They want fewer dollars, and they want more gold,” George Milling-Stanley, the vice president and chief gold strategist at State Street Global Advisors, explains.
China’s central bank is not the only one hopping onto the gold trend as we move into 2023. In the last quarter of 2022 alone, central banks purchased 417 tons of gold in total. The gold buying rate that central banks displayed last year and moving into 2023 is more aggressive than anything seen in the last 55 years. Central banks are buying more gold now than they did during the U.S. 2008 recession, the Cold War, the Iraq War, the Afghanistan War, and many other major events.
While China may be receiving all of the news attention for its gold purchase rates, another unsuspecting nation actually shows much fiercer actions. Turkey was the most active country in the precious metal market in 2022. The Central Bank of Turkey purchased a whopping 148 tons of gold in the last year alone, including 7% of the total purchased worldwide in 2022’s third quarter.
Turkey’s currency, the lira, is extremely weak and susceptible to inflation. One lira equals $0.053 U.S. dollars. Because of these extreme rates, many Turkish households stock up on gold to hedge against inflation and protect their funds from the weakening economy.
Turkey and China are only a few nations with high inflation levels and hefty gold purchase rates. The two concepts go hand in hand. As economies around the world continue worsening and inflation becomes a worldwide crisis, more nations must hop on the gold bandwagon to protect their financial best interests.
High demand is great news for gold investors. The more central banks continue to purchase gold by tons, the more prices jump. Gold investments may show excellent rewards in only a few years.
Current predictions show gold prices increasing by 3.3% in 2023, raising from $1,800 to $1,859 per troy ounce. Silver, platinum, and palladium all may follow suit.
As always, investors should consult their financial advisors before making any portfolio decisions. Gold is an excellent tool for hedging against inflation, offering long-term monetary protection amidst poor economic environments with high inflation rates.
