Central banks globally now hold a massive 12.1% of the total gold in the world. With this figure, the banks have smashed their highest-ever tally since 1990. The figure also implies that the banks were able to double their previous figure over the last decade.
The banks leading the gold-buying frenzy include China, Turkey, Poland, and India. China hit a record-new high, recording 2,264 tones. With the development, Gold now accounts for 5.4% of its foreign reserves.
Demands and strategic opportunities
The price of Gold has hit record highs since the beginning of the year, surging as high as 33%. The asset recorded a peak price of $2,772 per ounce this week, continuing its rise over the last few weeks.
With its 33% increase, Gold has outperformed the broader stock market by 10%. According to YCharts, Gold has seen a rise of 67% since the bull market began on October 22.
The World Gold Council report revealed that banks purchased 483 tons of the precious metal in the first six months of the year. The purchases were made to move dependency away from the dollar, which has been the central figure for global trade for years.
The buying spree increased due to several sanctions meted out to Russia after it invaded Ukraine last year. The reliance on the US dollar has left many countries vulnerable, especially as they look to be autonomous.
De-dollarization agenda picks up steam
A recent Financial Times report by Economist Mohammed El-Erian revealed that the continuous purchase of Gold signals a shifting trend. He added that there is great interest in a payment system away from the dollar.
He noted that Russia was confident in breaking away from using the dollar after the sanctions, and that move has influenced other countries. Countries are now improving their gold holdings and reducing their dependence on the currency.
The asset’s appeal has also continued to grow as geopolitical tensions rise. With several countries at loggerheads, gold is picking up steam as a safe haven asset in volatile periods.
United States’ debt is on the rise, making the Treasury which used to be secure, very risky. Bank of America also noted that gold is the last-standing asset. This is due to the demand it has generated from traders and financial institutions.
The largest gold ETF, the SPDR Gold Shares has about $78 billion of asset under its management. Also, in the last five months, it has recorded an inflow of $5 billion. Similarly, the demand for physical gold is high. Costco has sold multiple gold bars online, with Wells Fargo estimating the sales at about $200 million in gold bars and silver coins monthly.
Politics and the increase in gold demand
Political developments in the United States have also had an impact on the sales of gold. With Trump’s odds of winning improving, it has increased the expectations of a budget deficit.
Capital Economy economist David Oxley, a Trump win might likely drive investors to gold due to concerns about fiscal discipline and rising inflation.
He said gold could be a perfect alternative if rates increase and the economy is normal. And if the economy is not normal, it could be a store of value.
Interest rates have had effects on the price of gold. Over the years, falling rates signal an increase in gold prices, with the metal rising as high as 10% within six months of a federal cut.