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China’s economy is struggling, leading to an increase in purchases of gold as a safe haven asset.
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Central banks are on a gold buying spree, contributing to record spot gold prices.
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Other central banks are also purchasing gold to diversify their assets, supported by a strong dollar.
China’s economy is in crisis and people are running to buy gold as a safe-haven asset to protect against economic uncertainty, causing precious metal prices to reach historic highs.
The country’s central bank also took action, adding 60,000 troy ounces of gold to its stockpile in April, according to official data released on Tuesday. It was the 18th consecutive month that the People’s Bank of China accumulated gold.
But it’s not just about economic uncertainty. The increased interest in gold is also a setback to the strong US dollar, which is making it too expensive for emerging nations like China to import goods.
O dollar index – which measures the value of the greenback against a basket of six other currencies – has risen 4% this year and 10% since the beginning of 2022. This is due to the Federal Reserve’s interest rate increases since March 2022, which tend to strengthen yourself. the dollar.
The Chinese yuan has lost 1.6% against the dollar this year. It has fallen 4% in the last 12 months and about 12% against the dollar since the beginning of 2022.
Other central banks are also stocking up on gold. Major buyers of gold include China, Turkey and India, the World Gold Council, or WGC, wrote in a report last week.
“Responsible for nearly a quarter of annual gold demand in both years, many have attributed central banks’ continued voracious appetite for gold as a key factor in their recent performance in the face of seemingly challenging conditions: namely, higher yields and market strength. American dollar”. “, wrote the council.
In total, the world’s central banks purchased 290 tonnes of gold in the first quarter of this year – the strongest start to a year on record, according to the WGC.
Central banks have not stopped buying gold
Although central banks have been buying a lot of gold since 2022, this may not have been done yet, the WGC said.
“Not only is the long-standing trend of gold buying by central banks firmly intact, it also continues to be dominated by emerging market banks,” the WGC added.
Emerging market central banks that bought gold in the first quarter of the year include Kazakhstan, Oman, Kyrgyzstan and Poland.
There are also political motivations for central banks to diversify their assets.
“It has become evident that, in some cases, nations that are not allies of the United States have begun to look to reduce their reserve mix away from dollars as they realize the risks of keeping these reserves vulnerable to sanctions,” he stated. JP Morgan analysts wrote in a March report.
US-aligned governments are also adding gold to protect themselves against higher and more volatile inflation globally, JPMorgan analysts added.
The run on gold assets may not bode well for the US dollar in the long term if the currency continues to appreciate.
“A stronger dollar would weaken its role as a reserve currency,” economists at Allianz, an international financial services company, wrote in a report on June 29. “If access to the dollar becomes more expensive, borrowers will look for alternatives.”
O spot gold price it is now around $2,330 an ounce, down from its record highs above $2,400 an ounce in April.
Read the original article at Business Insider
