In 2023 the central banks of the world have been buying gold at the fastest pace since records
began. Central banks demand was at 228t in the first quarter of 2023, following on from an already
record breaking spate of buying in the latter part of 2022.
- Why do Central Banks buy Gold?
One reason is quite simply because that is what they have always done: gold is a legacy asset.
Indeed, before their creation, nations, states and empires used to hold precious
metals in their treasuries. Other reasons for the banks holding gold are much the same as
personal investors – diversification from other asset classes, a hedge against inflation, and a hedge
against the world’s reserve currency- the US Dollar. In essence, holding gold provides some
protection for the financial aystems and currency the Central Bank is responsible for.
- Why the increase ?
It is safe to say that that Central Banks around the world are responding to the increased economic
risks faced in 2023 – rising food and energy costs, threat of a banking crisis, an ongoing war with no
end in sight and inflation running at more than double than most of their targets.
- What does this mean?
In short, one can infer that Central Banks are adjusting to the bleak economic outlook and preparing for
the worst. Gold has always been a ‘flight to safety asset’, therefore gold being bought at record
pace by the institutions responsible for the economies of the world should be seen as a sign of a
rocky road ahead, and an indicator for all to prepare accordingly.
