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Central Banks were stocking up on gold at a rate not seen since 1967 in the last quarter of 2022. By April 2023, this “gold rush” had become so intense that Central Banks were acquiring gold at a rate never seen before.
Singapore, Turkey, China, Russia, and India were among the biggest gold investors, with the first four each buying over 30 tons in the first quarter of 2023.
What’s going on there?
It doesn’t take a genius to figure out that Central Banks are buying up gold because of insane inflation rates and geopolitical unrest, and it’s also interesting to note that “BRICS” countries are among the largest buyers.
Why is adding more gold to a country’s national reserves a smart move, though? It so happens that it’s for the same reasons individuals benefit from investing in gold. There’s a lot to learn from these Central Banks.
As a so-called safe-haven investment, gold holds intrinsic value and is indestructible. It is, in other words, a stable asset, something nothing can change. Despite periodic ups and downs in the price of gold, this precious metal also has a track record of rising in value steadily over the long term (meaning years, decades, and centuries).
Central Banks are buying gold to hedge against the inflation we’re currently seeing, even now that it has slowed down a little.
The US dollar is the world’s main reserve currency, and nearly all Central Banks hold significant dollar amounts in their reserves. While the US dollar isn’t their only reserve currency (as Central Banks also typically hold large amounts of Euros and Japanese Yen, among other currencies), this makes them keep a keen eye on the value of the dollar.
Diversifying their portfolios by adding more gold to the reserve can counteract the risks associated with a weak dollar. In other words, increasing gold reserves is a sensible form of risk management, as the price of gold doesn’t fluctuate in the way currencies can.
Inflationary periods and a weakened dollar both lead to consumer panic. (Just ask yourself — are you worried yet?) This panic can easily snowball, making a preexisting uncertain economic situation even worse.
Central Banks play a critical role in maintaining or recovering economic stability. Increasing gold reserves can send a strong message to the market, one that conveys confidence and projected stability.
Gold’s status as a safe-haven asset that retains value (and even appreciates) during uncertain times makes this precious metal an excellent store of wealth, too. That’s not true only for individuals. Central Banks can make use of this same principle and invest in gold to ensure the future financial health of the country.
Major geopolitical shifts — of the kind we’re living through right now — are associated with increased global conflict and changes in alliances. Buying up gold can give nations a level of independence they don’t get from foreign currency reserves.
It is noteworthy that the major gold buyers include a lot of ascending economies (like China, Singapore, and India). For them, investing in gold means investing in independence — especially independence from the Eurozone and the United States.
What Can You Learn From Central Banks as an Individual Investor?
The price of gold has been rather high this year so far, and the fact that Central Banks are stocking up plays an undeniable role.
Is investing in gold still favorable for the moment? Economists project that the price of gold will keep rising in the short term, especially with worries about an impending recession. Aside from the fact that investors still stand to profit, gold remains a stable store of wealth that will make it through all the turbulence currencies and stocks may not survive.
Take a page out of the Central Banks’ playbooks, and buy gold now to prepare for the period ahead.