Although the price of gold has been rising all the way recently, the heat of demand has not diminished in the slightest.
According to data from the World Gold Council, the demand for gold from the central banks of many countries has increased significantly in the first quarter of this year, which has increased the global central bank’s gold reserves by 228 tons.
Since 2022, global central banks have been buying gold. What is the reason behind it?
Many central banks buy gold aggressively
This year’s central bank’s gold purchases got off to a hot start. According to data from the World Gold Council, the central banks of many countries were still keen to buy gold in the first quarter, which increased the global official gold reserves by 228 tons, a record high in the first quarter.
Among them, Singapore, China, Turkey and India accounted for the “big head” of the total purchases. Data show that the Monetary Regulatory Authority of Singapore was the largest buyer among global central banks in the first quarter, purchasing 69 tons of gold; the People’s Bank of China purchased 58 tons of gold; the official gold reserves of Turkey and India increased by 30 tons and 7 tons respectively; And the Philippines increased by 2 tons and 1 ton respectively.
It is worth noting that the pace of gold sales by central banks has been much more moderate than the strong buying momentum. So far this year, net purchases of gold by central banks have far exceeded sales.
What are the considerations behind it?
Why are central banks around the world keen to buy gold? According to expert analysis, this is related to several characteristics of gold.
First, the risk-avoiding attribute.
The growth of the world economy is slowing down, and the risk of financial turmoil continues to ferment. Gold is favored as a traditional safe-haven asset. “Looking back at history, gold investment has brought positive returns in five of the past seven recessions,” said Louis Streeter, senior market analyst at the World Gold Council.
According to Guan Tao, global chief economist of BOCI Securities, entering 2023, as the Fed’s interest rate hike is gradually coming to an end, coupled with the continued turmoil in the banking industry in Europe and the United States, the market’s risk aversion sentiment is heating up, and the price of gold has been rising all the way. Since the beginning of the year, the price of gold in London has accumulated up more than 11%.
Second, anti-inflation properties.
Gold assets tend to outperform during periods of high global inflation. For example, Guan Tao said that during the period from 1974 to 1984, the average global inflation level was 15%, and the average yield of gold spot in London was 25.4%. At the moment of high global inflation, gold assets are naturally popular.
Third, security attributes.
Geopolitical risks are rising, and the safety of gold reserves is highlighted. After the outbreak of the Ukraine crisis, the major reserve currency issuing countries have increasingly weaponized their currencies and abused economic and financial sanctions, which has shaken the credibility of the current international monetary system. Guan Tao believes that the current increase in gold reserves by central banks of many countries will help promote the diversification of international reserve assets and prevent sanctions risks in future geopolitical games.
Gold price enters an upward channel
Looking ahead, will gold investment demand continue to rise? How will the price of gold change?
Louis Streeter analyzed that against the backdrop of banking turmoil, ongoing geopolitical tensions and a challenging economic environment, the role of gold as a safe-haven asset has continued to emerge. Under such circumstances, the investment demand for gold is likely to increase this year; the central bank’s gold purchases may also remain strong, and even if the amount of gold purchased may be lower than last year’s historical high, it is still expected to be the source of support for gold demand throughout this year. cornerstone.
At the same time, many institutions have also raised their forecasts for gold prices. CICC said that with the fall of US inflation and the current anti-globalization background, the price of gold has entered the upward channel on the right and is expected to reach the level of US$2,300 to US$2,500 per ounce.
In the early hours of May 4, Beijing time, the Federal Reserve raised interest rates by 25 basis points again. Taking into account the recent recovery of economic data, the crisis of several banks, and the US federal debt ceiling, it is still the general trend to suspend interest rate hikes.
Lu Liting, an analyst at Dongguan Securities, said that the current global economic development is highly uncertain. As a stable hedging tool, the demand for physical investment in gold and central bank purchases will continue to increase.
Li Shuaihua, an analyst at China Post Securities, believes that the Federal Reserve is expected to suspend interest rate hikes in June, and the margin of liquidity will loosen, which will release upward pressure on gold prices; at the same time, the economic recession is expected to continue to heat up, the value of gold allocation is prominent, and the price of gold is expected to break through $2,600 per ounce .