Why do global central banks "buy" gold?
Beijing, May 5 (ZXS) -- Question: Why did the world's central banks "buy" gold?
China News Agency reporter Liu Wenwen
Despite the recent rise in gold prices, demand has not abated.
According to the World Gold Council, the demand for gold purchases by many central banks increased sharply in the first quarter of this year, adding 228 tonnes to global central bank gold reserves.
Since 2022, global central banks have been buying gold, what is the reason behind it?
Many central banks are buying gold on a large scale
Central bank gold purchases have started hot this year. According to the World Gold Council, central banks remained keen to buy gold in the first quarter, adding 228t to the world's official gold reserves, a record high in the first quarter.
Among them, Singapore, China, Turkey and India accounted for the "lion's share" of total purchases. The data showed that the Financial Supervisory Authority of Singapore was the largest buyer among global central banks in the first quarter, buying 69 tons of new gold; People's Bank of China purchased 58 tonnes of gold; Turkey's and India's official gold reserves increased by 30 tonnes and 7 tonnes respectively; The Czech Republic and the Philippines increased by 2 tons and 1 ton respectively.
Notably, central banks are selling gold at a much more dovish pace than strong buying momentum. Year-to-date, central banks have seen net gold purchases far exceed sales.
What are the considerations behind this?
Why are central banks around the world keen to buy gold? According to expert analysis, this is related to several characteristics of gold.
First, the hedging attribute.
With the slowdown in the world economy and the risk of financial turmoil continuing to ferment, gold is favored as a traditional safe-haven asset. "Historically, gold investment has delivered positive returns in five of the last seven recessions." Louis Streetert, senior market analyst at the World Gold Council, said.
Guan Tao, global chief economist of BOCI Securities, analyzed that in 2023, as the Fed's interest rate hike gradually draws to an end, coupled with the continuous fermentation of turmoil in the banking industry in Europe and the United States, the market risk aversion has heated up, and the price of gold has risen all the way, and the London gold price has risen by more than 11% so far this year.
Second, anti-inflation properties.
During periods of high global inflation, gold assets tend to outperform. For example, Guan Tao said that between 1974 and 1984, the global average inflation level was 15%, and the average yield of London gold spot was 25.4%. At a time of high global inflation, gold assets are naturally popular.
Third, security attributes.
Geopolitical risks are rising, and the safety of gold reserves is highlighted. After the outbreak of the Ukrainian crisis, major reserve currency issuers increasingly weaponized their currencies and abused economic and financial sanctions, shaking the credibility of the current international monetary system. Guan Tao believes that the current increase in gold reserves by many central banks will help promote the diversification of international reserve assets and prevent the risk of sanctions in future geopolitical games.
Gold enters an ascending channel
Looking ahead, will gold investment demand continue to rise? How will the price of gold change?
Louis Streeter analyzed that in the context of turmoil in the banking industry, ongoing geopolitical tensions and a challenging economic environment, gold's role as a safe-haven asset has become increasingly prominent. In this scenario, investment demand for gold is likely to increase this year; Central bank purchases are also likely to remain strong, and even if they are likely to be below last year's all-time highs, they are still expected to be the cornerstone of supporting gold demand throughout the year.
At the same time, a number of institutions have also raised their forecasts for gold prices. CICC said that as U.S. inflation falls, coupled with the current anti-globalization background, gold prices have entered the right upward channel, and are expected to reach the level of $2300,2500 to $<>,<> per ounce.
In the early morning of May 5, Beijing time, the Fed raised interest rates by another 4 basis points. Considering the recent economic data pick-up, the crisis in many banks and the US federal debt ceiling, a pause in interest rate hikes is still the general trend.
Lu Liting, an analyst at Dongguan Securities, said that the current global economic development is uncertain, as a stable hedging tool, the physical investment demand for gold and central bank buying will continue to increase.
Li Shuaihua, an analyst at China Post Securities, believes that it is expected that the Fed will suspend interest rate hikes in June, the liquidity margin will be relaxed, and the upward pressure on gold prices will be released; At the same time, recession expectations continue to rise, the value of gold allocation is highlighted, and the price of gold is expected to exceed $6 per ounce. (End)