Gold prices are setting new record highs, topping $2,300 per ounce (at the time of writing) amid a broad commodities rally, international tensions and moves by global central banks.
One important catalyst for the gold price has been steadily increasing central bank purchases. Central banks have been increasing the proportion of their reserves held in gold – which operates as a safe haven in times of turmoil and is a diversification away from US dollars. Conflict in Ukraine and the Middle East, as well as speculation that the US Federal Reserve (Fed) may loosen monetary policy later this year, are two further factors giving bullion a lift.
The US leads the world’s official bullion holdings, making up 69.7% of its reserves. China, the world’s second-largest economy, led central banks in gold purchases in 2023, ahead of Poland and Singapore, according to Bank of America data. China added 225 metric tons of gold to its reserves last year and has stockpiled gold for 17 straight months. Its increases last year were the most for the country since 1977.
One factor driving central bank buying was the EU and US move to freeze the central bank of Russia’s foreign reserves following the invasion of Ukraine. Some central banks must be worried that they could fall foul to similar actions in the future. China’s gold-buying strategy also fits well with its goal to diversify its assets alongside other BRICS countries (Brazil, Russia, India, China, and South Africa), which are aiming to lessen dependence on the US dollar, or “de-dollarise”.
Source: Axios
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.
