Central Banks Engage in 'Gold Shopping'... Gold Purchases Increase by 152% in One Year

Central banks around the world have started hoarding gold, a safe-haven asset. As geopolitical tensions escalate due to high inflation, a strong dollar, the Ukraine war, and US-China conflicts, they are filling their vaults with gold instead of foreign currency. With increasing demand for gold, its price is approaching an all-time high.

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According to the World Gold Council (WGC) on the 24th, central banks from countries such as China and T?rkiye purchased 1,136 tons of gold in 2022. This is the highest level since 1967. The amount of gold purchased increased by as much as 152% compared to the previous year.

Primarily, central banks from non-Western countries such as China, Russia, and India have been buying gold. The People's Bank of China purchased 62 tons of gold in November and December last year, pushing its gold reserves above 2,000 tons for the first time. T?rkiye's central bank's gold reserves also increased by 148 tons last year, totaling 524 tons. Middle Eastern and Central Asian countries actively bought gold last year as well.

Uncertainty has increased due to the US Federal Reserve's interest rate hikes, the Ukraine war, and concerns over a global economic slowdown, boosting the preference for gold as a safe-haven asset. Gold's appeal as an inflation hedge has also grown.

Among numerous macroeconomic uncertainties, central banks were particularly concerned about geopolitical risks. According to a survey on foreign exchange reserves trends by HSBC, conducted by the UK research institute 'Central Banking Publication,' over 40% of respondents identified geopolitical risk as one of the biggest risk factors this year, a significant rise from 23% last year. One-third of respondents said they have already changed or plan to adjust their asset purchase portfolios due to rising global tensions such as Russia's invasion of Ukraine and worsening US-China relations.

Gold's appeal has especially increased following sanctions against Russia. The US, European Union (EU), and others froze $300 billion worth of assets held by the Russian central bank after the Ukraine invasion, but gold was effectively excluded from sanctions. Most of Russia's gold reserves are stored domestically rather than overseas, so they were not directly targeted by sanctions. John Reade, Chief Market Strategist at WGC, analyzed, "Many countries have realized that gold is useful when other assets are inaccessible, as Russia's gold appears to be outside the control of sanctions."

Central banks plan to continue purchasing gold. According to the WGC survey, more than two-thirds of the 83 central banks managing $7 trillion in foreign exchange reserves said they intend to increase their gold holdings this year.

As central banks continue buying gold daily, gold prices are reaching record highs. According to Investing.com, the price of June gold futures for delivery in India was trading at around $1,995 per ounce on the 23rd (local time), up more than 9% since the beginning of the year. Compared to six months ago, it has risen 20%. This is close to the all-time high of $2,063 recorded on August 6, 2020.

One foreign media outlet analyzed, "Gold tends to become a more attractive asset during unstable times," adding, "Central banks are reconsidering their investment strategies due to geopolitical tensions, including the Ukraine war, and are filling their foreign exchange reserves with gold."

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