In recent months, gold has emerged as a sought-after asset for both individuals and central banks, particularly in China, as they seek to hedge against economic uncertainties and the strong US dollar.
The People’s Bank of China has been adding to its gold reserves for 18 consecutive months, with the latest addition of 60,000 troy ounces in April.
The rising demand for gold is not limited to China, as other emerging nations, such as Turkey and India, have also been significant buyers. This trend is largely attributed to the increasing cost of importing goods due to the strong US dollar, which has gained 4% this year and 10% since the start of 2022, primarily due to the Federal Reserve’s interest-rate hikes.
Central banks worldwide have been on a gold-buying spree, with a record-breaking 290 tons purchased in the first quarter of this year alone. The World Gold Council suggests that this trend is likely to continue, particularly among emerging-market central banks, as they seek to diversify their assets and protect themselves against higher and more volatile inflation globally.
Political motivations also play a role in this shift, as some nations not allied with the US aim to reduce their reliance on dollar reserves to minimize the risk of vulnerability to sanctions.
However, this rush into gold assets may have long-term implications for the US dollar’s role as a reserve currency, as borrowers may seek alternatives if access to the dollar becomes more expensive.
Following recent dips from its record highs in April, the spot gold price remains around $2,330 an ounce.
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