Reasons Why Central Banks Are Buying Up more Gold Bullion:
One of the main reasons that central banks are stocking up more on gold recently is to be able to sufficiently diversify their reserves to protect against macroeconomic uncertainty and geopolitical shocks. This is because, in terms of economic and geopolitical volatility, when currency and other asset prices may fluctuate, gold is seen as a safe haven asset and an inflation hedge.
As such, gold’s relatively stable performance during times of crisis, as well as its inflation hedge qualities are driving factors behind central banks picking the metal. It is also an effective way to diversify central bank portfolios and is considered to be highly liquid, with no default risk. It is also less affected by policy risk and can be used as a valuable collateral and policy tool.
In some cases, gold can also help countries facing international sanctions, such as Russia, to avoid them. This in turn, incentivises these countries to buy more gold and use it to help maintain their liquidity, in case other means of finance are blocked off or difficult to access. Central banks also buy more gold to help their countries reduce dependence on globally dominant currencies such as the US dollar.
According to the World Gold Council, central bank gold demand came up to 183 tonnes in the second quarter of the year. This was a 6% increase year-on-year, but a 39% drop quarter-on-quarter. Net buying in the first half of the year also came up to 483 tonnes, which was 5% more than the corresponding period last year... euronews.com
Share Your Thoughts