The gold-buying momentum has approached a level not seen since a decade ago. Global central banks and retail investors are leading the charge for gold’s demand. Continued anticipation of further rate hikes by the feds and the need to hedge against inflation is the major motivation driving the accumulation of gold by the central banks.
According to the World Gold Council (WGC), there has been a surge in the purchase of gold by central banks with a year-on-year increase in purchases totaling 1,136t in 2022 alone. This tally marked the highest amount of demands since the 50s.
Interesting data from the WGC also reveals that central banks have purchased gold bullion at the fastest rate in January and February this year than at any time in history. Also, central banks made a purchase of 129t, the highest since they started purchasing gold 13 years ago.
These trends can be attributed to the following factor:
The need for an inflation hedge
The covid-19 pandemic witnessed a period of lowering of interest rates and massive government support leading to increased printing of fiat notes. Post-pandemic, global economies experience financial meltdowns and widespread surge in inflation leading to central banks across the globe hiking up interest rates.
The need to hedge the economy against inflationary factors led to the push towards a proven hedge – Gold. In 2022, world central banks accounted for a quarter of gold purchases, 1136 metric tons, 152% more than the previous year.
Geopolitical uncertainty and economic volatility could account for an increased interest in gold. Big buyers include central banks of Turkey, Uzbekistan, India with reported reserves and People’s republic of china and Russia with unreported reserves.
New information shows that Russia has about 24% of its reserves in gold.
Portfolio Diversification
The need to diversify in the event of economic instability has also been a driver to the demand of gold. The US dollar has an inverse relationship with gold meaning a weak dollar would be a boost in the price of gold, hence the reason the central banks diversify their portfolios with gold.
Renewed interest among retail investors
Retail investors made a significant contribution to the increase in demand for gold last year. Retail investors made a total purchase of 1217 metric tons, 2% up from 2021 figures. These figures exclude over-the-counter transactions meaning they could be more.
This increased demand is not far-fetched from the need to hedge against economic volatility and inflationary factors
You should protect yourself too
Post-pandemic economic woes still loom over national economies of the world and many nations are taking the initiative to protect themselves from economic volatility and uncertainty.
Central banks have been accumulating gold at unprecedented levels just to hedge against inflationary factors.It is necessary for individual investors to diversify and also hedge themselves against unfavorable conditions and back up their assets in inflation-proof investments such as gold.
A precious metal IRA is a sure way of keeping your assets safe and secured.
We are committed leaders in the precious metal industry and our brand thrives on trustworthiness. To begin the journey to safeguarding your retirement reach out to us at (888) 615-8047 or fill out the form on the right side and get your FREE Guide for Investing in Precious Metals.
