According to data provided by World Gold Council, the amount of gold that central banks have in reserve has now surpassed 36,000 tons. This is the highest level since 1990. This increase follows growth in the banks’ reported holdings of the asset by 4,500 tons over the past decade.
Dollar’s Decline a Boon for Gold
For the first time in 1990, central banks had 36,000 tons of gold as reserves. According to the World Gold Council (WGC), this increase in central banks’ gold holdings to a 31-year-high came after the institutions successfully added 4,500 tons of the precious metal over the past decade.
In a report published by Nikkei Asia, the WGC attributes central banks’ growing preference for gold to the U.S. dollar’s decline. The report explains how the U.S. Federal Reserve’s significant monetary relaxation has resulted in an increased supply of U.S. dollars. According to the report, this has led to a sharp decline in gold’s value over the last decade due in part, to an increase in dollars.
The report cites Poland as an example of a central bank that is believed to have bought about 100 tonnes of gold in 2019, supporting the idea central banks are more inclined to buy gold. Concerning the National Bank of Poland (NBP)’s purchase of the gold, the institution’s president Adam Glapinski is quoted by reports pointing to the fact that the precious metal is not directly tied to any nation’s economy and that this enables it to endure global unrest in markets.
No Counterparty Risks for Gold
Gold is thought to not only be immune to financial market volatility but also free of credit- and counterparty risk. The report states that this was one reason why Hungary has increased its gold stock to 90 tonnes.
According to the report, emerging countries’ central banks are also trying to reduce or limit their dependence on the dollar. In addition, these central banks are building up their gold reserves in order to limit their respective economies’ exposure to their depreciating currencies.
Many central banks had preferred to increase their dollar-denominated assets, such as U.S. Treasury securities and proceeds from gold sales prior to 2009. According to the report, U.S. confidence dropped after 2008’s financial crisis which resulted from the outflow funds from U.S. Government bonds.
As WGC’s September data suggests, gold is again becoming a tool used by central banks to protect their assets.
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