Central banks around the world have significantly increased their gold purchases in recent months. The World Gold Council reported that central banks had built up their gold reserves at a record pace in the first two months of the year, collectively purchasing 125 tons of gold. Singapore, Turkey, China, Russia and India made the largest gold purchases in January and February, with Russia providing a gold reserve update for the first time in close to a year.
A recent poll by the World Gold Council has revealed that plenty of central banks won’t be stepping back from gold any time soon. The survey found that one-quarter of central banks plan on building up their gold reserves to hedge against the U.S. dollar. The survey indicates that more and more central banks worldwide are losing faith in the greenback and are looking to significantly grow their gold reserves as a hedge against the greenback.
According to the survey, central banks still view gold favorably despite a recent bout of historical high-level gold purchases, and 24% of the banks plan on increasing their gold reserves over the next 12 months. Furthermore, the survey noted that central banks are more pessimistic about the dollar than they have been in prior surveys, with 62% of the central banks reporting that they believe gold will hold a larger share of reserves compared to the dollar in 2022.
The survey also noted that 7 out of 10 central banks (10% more than in 2022) stated that they believe there will be a general cease in gold reserves over the next three quarters. In addition, the survey also found that 46% of central banks in advanced economies believed the dollar’s share of global reserves would decrease while 58% of emerging market central banks expected a similar decrease in the U.S. dollar’s share.
The advanced economies said this belief was based on governance, social and environmental factors while the emerging economies noted that their sentiment was due to “shifts in global economic power.”
World Gold Council’s director for central banks and public policy Shaokai Fan said that there has been a significant shift in how central banks see the greenback and gold, with the dollar experiencing more pessimism while gold is subject to more optimism. Central banks listed issues such as increasing interest rates from the Federal Reserve, high rates of inflation and geopolitical tensions due to the ongoing Russia-Ukraine war as concerns.
This rising interest in bolstering gold reserves could act as a tailwind for the trajectory of gold industry players such as Royal Gold Inc. (NASDAQ: RGLD) since increased demand will bump up prices at least in the short-term.
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