Gold Rush: Why are central banks world over acquiring more gold than they used to?

Tribune Web Desk

Vibha Sharma

Chandigarh, April 12

In a country like India gold is not just a commodity but has sentimental and emotional attachment passed on from generation to generation as family heirlooms and also tools of investments.

Indians buy gold for marriages and other ceremonies in the family and also ocassions like ‘Akshaya Tritiya’ and ‘Dhanteras’ as part of the religious process.

The bottom line is people in India love gold and even those with limited means try to acquire it, even if a few grams.

Seemingly now, central banks across the world are also in the race to accumulate more of the precious metal than they used to some years back.

In January and February, central banks across the world collectively purchased 125 tonnes—said to be the highest for the year-to-date period since banks became net buyers in 2010, according to the World Gold Council.

Gold reserves in India also increased to 787.40 tonnes in the fourth quarter of 2022 from 785.35 tonnes in the third quarter of 2022.

The 787.40 tonnes gold assets India currently holds is the highest ever, according to reports.

Countries with the highest gold shopping the first two months of 2023 include Singapore (51.4 tonnes), Turkey (45.5 tonnes), China (39.8 tonnes), Russia (31.1 tonnes) and India (2.8 tonnes). Overall, the central banks added 1,136 tonnes of gold worth around $70 billion in 2022—the highest in any year since 1950—according to reports quoting the council.

Turkey was the top buyer in 2022.

Why gold?

In Indian homes, gold was always considered a safe and profitable investment and to tide financial hard times.

However, the fact is world-across the precious metal is considered a hedge against inflation, currency volatility, etc., a reason why countries appear to be in a rush to acquire it.

The top 10 countries with maximum gold reserves include the United States, Germany, Italy, France, Russia, China, Switzerland, Japan, India and the Netherlands in that order.

Experts say that India is also buying more gold as a tool of diversification of portfolio and as a cushion against value changes in the rupee vis-a-vis the US dollar.

As an international commodity gold is priced in US dollars.

Any depreciation in the rupee is expected to result in a rise in its price.

BRICS and gold

Experts say that economic uncertainty, inflation and the recessionary impact of Covid-19 on the global economy pushed overall gold prices higher in the past two years.

But the race to accumulate more also seems to be driven by some other factors, including the changing geo-political situation.

The higher purchases seem to have been driven mostly by members of BRICS (Brazil, Russia, India, China and South Africa) countries.

The buzz is that they need gold to support their currencies and shift away from the US dollar.

Reports suggest that BRICS may soon expand to include other emerging economies.

Apparently, several countries have expressed interest in its membership to counter the mostly West-dominated groupings.

Gold appears to be a part of the effort to develop a separate medium and perhaps diversify from the US dollar, reports suggest.

Advice for small investors

The value has increased substantially in the past two years.

Given that gold is also a finite source, experts believe small investors should aim to increase their exposure and allocate a percentage of their savings to it.

Considered a “safe and profitable” investment, it has a better track record against inflation than other instruments of saving during uncertain times, wars, pandemic, economic slowdown, etc., experts say.

“Broader trend on COMEX (the primary futures and options market for trading metals such as gold, silver, copper, and aluminum, gold) could be in the range of $1985-2010 and on domestic front prices could hover in the range of Rs 59,800 – 60,800,” says Rushabh Shah of White Marque Solutions.

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