In the last hours, Russia confirmed that it will increase its gold holdings. It happens in the middle of the metal rally that was driven by the rise in global conflicts, which hardly show signs of abating and pending interest rate cuts from the United States and the United Kingdom.
In this framework, the latest data from the World Gold Council (WGC) reflect that the monetary authorities have chained 14 years of net acquisitions of this precious metal, bringing its holdings above 36,700 tons worth US$2.52 billion.
The last two years, moreover, have been especially prolific. With purchases worth 1,000 tons in both years, all recent records have been surpassed, taking acquisitions to levels unknown since 1967.
The monetary authorities concentrate 17% of all gold in circulation, only behind the tons historically dedicated to jewelry and ornaments (45%) and ingots and coins (22%).
China, Russia, Türkiye and India are the countries that have increased their reserves the most. Gold purchases have been especially concentrated in emerging countries, while the historical masters of gold, the United States, Germany and France, have kept their holdings unchanged.
Gold: what are the reasons driving the rise?
The price of gold has broken so many records in recent weeks that it’s hard to keep track. After reaching $2,160 per ounce in early March, it rose again to $2,259.29 on April 1 and then to $2,292.30 on April 4. Yesterday, the price of gold closed the day at $2,329.57 per ounce, with no clear signs of cooling on the horizon.
1. The geopolitical conflict
The wars in Ukraine and Gaza continue and the possible escalation to other countries hangs over the markets like the sword of Damocles.
Investors and governments fear consequences similar to those when Vladimir Putin first invaded Ukraine two years ago, and gold is one of the most effective hedges against these concerns.
2. The purchasing trend of central banks
Strong physical demand from Asia’s central banks and retail investors is also supporting the yellow metal. However, demand is expected to decline in the short term as investors balk at higher prices.
Ole Hansen, head of commodities strategy at Saxo, said the prospect of lower funding costs may finally see demand for exchange-traded funds (ETFs) bullion-backed real money asset managers rally for the first time since 2022.
So far this year, central banks report having added 64 tons in January and February, 43% less than in the same period of 2023, but four times more than in 2022.
3. Gold as an inflation hedge
The gold rallies They usually occur when inflation appears to be on an upward curve, depreciating the value of the currency.
However, Federal Reserve Chairman Jerome Powell’s policies will be a major driver for stocks and commodities in the short and medium term.
The Federal Reserve won’t lower interest rates until June at the earliest, and year-over-year inflation sits at 2.5% thanks to a booming economy. The resulting strength of US dollar cmakes things even more complicated for gold forecasters.
The currency just surpassed a four-month high, adding pressure to the gold market and clouding the outlook for those exposed to bullion.
Gold: the BRICs promote the purchase of gold to gain leadership from the dollar
Russia has assumed the main leadership of the bloc along with China. Since it invaded Ukraine, the country has sought mechanisms alternative financials. In turn, Russia and the BRICS are taking advantage of gold’s growing momentum to support their new currency.
Additionally, many experts see Russia inspiring other countries to pursue gold-backed trade and currencies to abandon the US dollar. lhe African countries, including Zimbabwe, have an interest in the BRICS de-dollarization initiative and, therefore, also in gold.
Source: Ambito
