The world has never been short on geopolitical uncertainties and recent developments have taken the threat levels to unprecedented heights. As a result, investors have increasingly turned to safe-haven assets that can protect their investments from market turbulence.
Gold has long been considered the preferred safe-haven asset and investors often flock to the precious metal during times of market turmoil. This is because gold has a long-standing reputation as a hedge against inflation, currency devaluation and economic uncertainty. As such, the demand for gold tends to increase during periods of geopolitical uncertainty as investors seek to diversify their portfolios and reduce their portfolio volatility.
With geopolitical tensions rising globally, it's no surprise that investors are relying on gold to shield themselves from any further turbulence.
What is even more telling is that institutional investors have also been buying gold at record levels.
Central Banks Are Buying Gold At Record Levels
Central banks have been traditionally viewed as the guardians of monetary stability and long-term value preservation. The fact that they continue to add gold to their reserves reflects their unwavering belief in the precious metal's ability to maintain its value over the long term.
As we move forward, it's clear that gold will continue to play a pivotal role in central banks' diversification strategies, providing a stable foundation for their portfolios and ensuring long-term financial stability.
Central banks' interest in gold has been growing in strength in recent years, with 2022 seeing the highest level of gold purchases on record. In fact, the net gold buying by central banks has been in the positive territory for 13 consecutive years.
This trend speaks volumes about the confidence that central banks have in gold as a reliable and long-term store of value.
In 2022, central banks significantly increased their gold holdings, with the total purchases more than doubling from the previous year. Again, gold's appeal to central banks lies in its time-tested role as a hedge against inflation, currency fluctuations, and global uncertainties.
And it’s not only central banks.
Powerful Nations Are Also Buying Gold
The world's largest economies have long recognized the value of gold as a strategic asset and have been hoarding it for decades. For example, the United States holds the largest gold reserves in the world, with over 8,100 metric tons, accounting for approximately 78% of its foreign reserves. Similarly, Germany, Italy and France are among the world's top ten gold-holding nations (source: World Gold Council).
The Chinese government has also been actively adding gold to its reserves in recent years, with holdings increasing from 1,054 metric tons in 2015 to 1,948 metric tons in 2021.
Russia is another major player in the global gold market, adding 312 metric tons to its reserves in 2021, taking its total gold holdings to 2,299 metric tons, making it the fifth-largest gold-holding nation globally.
These large nations' ongoing efforts to increase their gold reserves is a testament to the enduring value of gold as a strategic asset. Gold has a long-standing reputation as a store of value, which is particularly attractive in times of economic uncertainty and geopolitical tensions.
Gold's appeal to large nations is only set to increase in the coming years, with countries continuing to see the value of holding a physical asset that can serve as a reliable and long-term store of value.
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