The Truth Behind Recent Gold Buying Activity in Banks: What’s Really Happening?

Statistics from the World Gold Council (WGC) show that central banks of the world’s largest states have been accumulating gold at the fastest pace at the start of 2023. The cumulative volume of purchased gold surpassed the previous record mark registered in 2010, signaling a protective reaction to the latest geopolitical pressures and economic risks in the global environment. 

So, why are banks buying so much gold? What should that trend say to retail investors and households? And what actions can individuals and businesses take to secure their belongings in the worsening economic climate? Let’s find it out. 

Who Leads in the Gold Purchases? 

The WGC data suggest that Singapore, Turkey, China, India, and Russia are the top states buying the largest amount of gold at the start of 2023. Singapore purchased the largest amount – 51.4 tons of gold, while Turkey acquired 45.5 tons of gold within the same period. China is known to get 39.8 tons of gold, Russia – 31.1 tons, and India – 2.8 tons of gold. 

As the leading net buyer of gold, the People’s Bank of China has recently achieved a cumulative volume of 2,076 tons of gold (as of May 2023). This move towards greater reliance on gold coincides with the rising tension in the Washington-Beijing relationships and China’s increasing reluctance to use USD in international transactions. Other central banks’ growing tempos of gold purchases are also attributed to the Russian invasion of Ukraine in February 2022, which set the world into sharp political polarization and created additional economic and political uncertainty. 

As for Russia, its motivation behind increased gold purchases is definitely linked to Western sanctions. According to financial experts, gold assets are much harder to trace and freeze than regular currencies, treasuries, stocks, and bonds. Therefore, increased investment in gold can be explained by a forced transition to gold payments with trading partners – the only variant to continue international trade amid the European and American sanction pressure. 

BRICS as a Major Gold Buyer 

As one can clearly see from the list of gold’s top buyers, three of them are members of the BRICS bloc of states. BRICS was created in an effort to counterbalance the dominant economic power of G7, which is associated with a West-led economy and mindset. G7 consists of Canada, France, Germany, Italy, Japan, the UK, and the USA, which are definitely westward-oriented economies. As the modern world moves to multipolarity, many countries refuse the USD as an international currency and seek ways to strengthen their own economies and currencies without reliance on the US dollar. 

This way, gold is a critically important instrument that fuels multi-polarization in the global economy. Without USD as a reserve currency, BRICS countries gradually shift to gold as a reserve asset that can back up their international transactions. Besides, with intensifying gossip about the upcoming uniform BRICS currency, gold may become its vital backing asset that will ensure a smooth adoption of that new payment medium. 

Are Banks’ Purchases a Positive Buying Signal? 

Looking at this information, you might be reasonably wondering what’s in it for you. Overall, the sentiment for gold prices is positive, as the gold-backed ETFs reveal positive dynamics, and the accumulation of gold and gold stocks continues among institutional players. Since gold is a finite resource, and its mining has been slowing down in the past years, the rising demand is expected to push prices upward, which is good for investors. That’s why investing in gold right now is a good idea, regardless of whether you choose gold miners, gold ETFs in the traditional market, or gold-backed digital tokens.

Top 7 Reasons to Own Gold in 2023 

Gold has many centuries, if not millennia, of wide use as a symbol of status, wealth, and good taste. Gold accessories have been cherished since the early civilizations, and the use of gold as a globally accepted currency also fueled people’s attraction to this gold metal. 

The times have been changing, and gold, along with other precious metals, has lost its primacy as a currency with the states’ departure from the Golden Standard. Yet, the modern period in global finance and economy signals a new turn, and gold regains its role as a more stable class of assets compared to the US dollar, securities, and stocks. 

If you’re still undecided about whether you need gold in your investment portfolio, here are the top 7 reasons to take it seriously in 2023 and beyond. 

#1 Glorious History of Value and Recognition 

Gold has been used for various purposes since time immemorial; it was a precious asset and a currency equivalent, holding a value of its own and also being used in financial transactions. Though the times of golden coins in circulation are long gone, gold still enjoys the globally recognized status of a scarce, precious metal of high value. Thus, owning it is always a good idea, as it can be preserved for decades and passed down to further generations without losing its meaning and value. 

#2 Weakening USD 

The US dollar has been a globally recognized and widely used reserve currency for many decades. However, USD’s slow and unavoidable downfall started in 1998 and has been going faster since then, culminating amid the 2008 financial crisis and now regaining speed during the escalating geopolitical tension. 

The weakening USD also contributed to the rise of gold prices, resulting in a 300% increase from 1998 to 2008 and then doubling again in 2008-2012. The processes that led the USD to downfall in that period related to budget deficit, trade deficits, and careless increases in the money supply. However, the 2008 crisis’s lessons seem to have taught FED nothing, and the country is again heading to a critical point where USD will lose much of its strength and significance. 

These trends may tell much to an intelligent investor, giving you a good entry point to buy gold now and enjoy a generous ROI in the next couple of years.  

#3 Looming Inflation 

The processes described above inevitably push the United States to greater inflation, and gold is an excellent hedge against this economic trouble. As the USD continues losing its purchasing power to inflation, gold rises in price and gives a vital hedge to investors amid the skyrocketing cost of living. Interestingly, this dynamic is not unique to US investors only; a gold owner in any corner of the world is firmly shielded against inflation and can get lucrative gains from their golden assets. 

#4 Geopolitical Risks 

The USA is on the threshold of recession, which may drown the whole world in economic turmoil. We live in times of intensifying distrust of governments, with people looking for more universal assets of value. Gold can act as a shield against geopolitical uncertainty, as it possesses globally recognized value, unlike a national currency. Thus, gold offers relative safety amid the looming risks of geopolitical conflicts; it can be exchanged for any currency in any part of the world. 

#5 The Law of Demand and Supply 

Gold is becoming an increasingly scarce commodity as its mining slows down, and central banks are growing more reluctant to sell bullion gold to interested buyers. Thus, following the law of declining supply, demand for gold is doomed to rise in the coming years, pushing gold prices upward.  

#6 Diverse Portfolio 

Any investor’s golden rule is not to keep all eggs in one basket. Buying gold matches this principle ideally, as stocks, currencies, and any other securities enjoy peaks and downfalls. Thus, gold can counterbalance your riskier, though higher-yielding, asset portfolio. 

#7 Promising Price Potential 

Last but not least is the price potential of gold in the short-term to mid-term perspective. Physical gold prices have risen by 10% in 2023, and the next goal predicted by the UBS investing analysts is $2,200 – a realistic target by March 2024. Therefore, even at the current peak, gold still promises an almost 8% upside within around half a year – a profitable deal for a stable, conservative asset like gold. 

Time to Buy Gold Is Now 

Thus, as you can see, the moment for buying gold is ideal. Global dynamics are unfavorable to USD, and the world is on the threshold of new shocks, from new COVID-19 waves to mounting political uncertainty. Gold can become a stable, firm shield against these turbulences, protecting your belongings and balancing your portfolio for long-term resilience.

If you are earning a steady income, savings are always on the agenda. But if you are looking at becoming financially independent, your savings are not going to be sufficient. This is exactly why all financial consultants advise on making investments.

Investments help you multiply your savings so that you can have money to pay for your expenses. If you are in the UAE, there are various investment avenues that you can choose from.

National Bonds:
The National Bonds scheme is available to everyone, including the UAE nationals. Purchasing these bonds is convenient, and there is no restriction on the minimum income from these bonds. You can invest a decent amount of money in National Bonds and reap good benefits.

Private Equity:
Another option is an investment in Private Equity. There are several private investment firms in the UAE that help you trade in profit-making stocks. However, earnings from stocks are volatile and could be dependent upon numerous factors depending on local and global market conditions.

At Bank of Bullion, we understand the importance of security as well as the assurance of consistent returns when you are investing.

Here is why Bank of Bullion Gold Bonds is the most beneficial option to save and invest.

1. Rate of Interest: When you invest in Bank of Bullion Gold Bonds you can earn more interest on your investment as compared to the other avenues. Our highest returns are 9.89% which is greater than the rate of interest offered by other bonds or even the savings accounts.

2. Security: When you invest in Gold Bonds, you are issued debentures over the assets of the issuing company. The complete processing of your investment at Bank of Bullion is done through regulated trustees which offers more security. To top it all, this investment also comes with the corporate guarantee from Bank of Bullion.

3. Tax-ability: With the UAE being a tax-free country, the interest earned from investing in gold bonds are exempted from state and local taxes. Investors can reap the benefits of earning all interests accrued on their invested amount.
For more information on gold bond investments in the UAE, get in touch with our team at Bank of Bullion. Our experienced consultants are here to talk you through best investment option and support you with investing through our regulated trustee.