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Summary:
Central banks are not selling their gold reserves anymore. Data shows that in 2019, central banks bought 650.3 tonnes of gold, up 34% from the previous year. This trend continued in the first quarter of 2020. The reason for this shift is concerns over the US dollar’s long-term value. Gold is seen as a stable store of value, making it an ideal reserve asset.
Original text:
Central banks did something unusual last year – they stopped selling gold. […]
The Bundesbank admitted that repatriating its gold from overseas storage locations was failing due to an inability to obtain metal from Paris. Concerns about the US dollar’s long-term value persists, which may be adding some momentum to central bank gold buying too.
Even Ray Dalio, the founder of Bridgewater Associaes, said that investors should have gold in their portfolio due to the world’s current economic uncertainty.
Rather than moving more gold to safe havens, central banks may simply be halting gold sales in general, and continuing to buy gold to top up reserves. Data shows that in 2019 central banks bought 650.3 tonnes of gold, up 34% from the previous year, the highest level in half a century.
BullionVault reports that “the first quarter of 2020 was the strongest start to a year for central bank gold buying since 2013,” with Kazakhstan, Turkey, Uzbekistan and Russia adding 60 tonnes to their reserves.
Gold is well-known as a hedge against inflation – often gaining value as other assets and currencies lose purchasing power – as well as being a good means of preserving capital during times of economic uncertainty when other asset values may be falling. As a result, central banks view gold as an important reserve asset to protect against economic shocks.
Simplified text:
Central banks have broken their tradition of selling gold. Instead, they have been buying gold to bolster their assets. Last year recorded central banks purchasing 650.3 metric tonnes of gold, which is 34% more compared to the previous year and is the highest level in 50 years. This trend continued in the first quarter of 2020 with countries such as Russia and Turkey adding 60 metric tonnes of gold to their reserve. The reason behind this shift is the concerns about the long-term value of the US dollar as gold is renowned for its stable value and is a safe asset. Gold is considered a hedge against inflation and a stable asset during times of economic uncertainty. Therefore, central banks see it as an important reserve asset to protect from economic shocks. Ray Dalio, the founder of Bridgewater Associates, has also advised investors to allocate gold in their assets due to the current economic uncertainty.
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