Why do central banks tend to buy gold?


“Eurasia” magazine explains the motives of central banks around the world to buy gold and add it to their reserves, in light of the data of the World Gold Council, which show that these banks’ gold purchases in 2022 reached an unprecedented level.

  • Gold is traditionally considered a safe precaution against inflation, as its value tends to rise in light of an uneven economy. Why do banks tend to buy gold?
    Gold has traditionally been considered a safe hedge against inflation, as its value tends to rise in an uneven economy.

“Eurasia” magazine mentioned that central banks, especially in light of the economic crises hitting the world, resort to buying gold, to be part of their reserves, instead of the dollar.

Data published by the World Gold Council in November showed that “in the year 2022, global central banks worked to buy gold,” and that “the year 2022 recorded the largest purchase rate of the yellow metal.”

The World Gold Council said, “Central bank purchases of gold have reached a level unprecedented since 1967, as central banks in the world bought 673 metric tons in one month, and in the third quarter, the figure reached 400 metric tons.”

The council stated that “the demand for gold rose by 28% this year, mainly driven by the trend towards safer assets amid high inflation,” and that “a large amount of this demand came from central banks in recent months,” noting that “Turkey was the largest gold buyer in the third quarter, followed by Uzbekistan and India.


Why resort banks now to buy gold?

The US dollar constitutes the largest percentage of central bank reserves, and in light of global competition, it would be logical for some central banks, especially those in China, to decide to reduce dependence on the dollar and to buy gold, according to the magazine.


“Eurasia” stated that “China’s high foreign exchange reserves are a major source of stability for the People’s Bank of China, especially the US dollar,” but “nevertheless, this US dollar reserve will be too much, especially in the event of an unprecedented wave.” dollar depreciation in the next ten years.

Another factor that pushes banks to buy gold, according to the magazine, is “the possibility that central banks will issue digital currencies.”

She said, “If central banks start issuing digital currencies, the level of currency purchasing power destruction seen in the past 50 years will be very small compared to what could happen with unbridled central bank control in the future, and in such an environment, gold’s status as a reserve of value is insignificant.” unparalleled.”

Gold is traditionally considered a safe precaution against inflation, as its value tends to rise in light of an uneven economy.

Also read: Gold prices are falling, and the decline in the dollar limits losses



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