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Why are central banks buying gold

14 November 2023

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.