Global central banks are buying gold. The main purpose is to "de-dollarize"?
In recent times, the price of gold has been relatively strong. The international gold price has remained at a high of 1,817 US dollars /ounce. The international demand for gold has reached the highest level since 2016.
Central banks around the world are buying gold
Why do gold prices continue to rise despite economic recession and sluggish asset demand? The main purpose is still related to needs. Today let’s talk about why the world is “buying gold like crazy”? It is not easy to code . Welcome to like, forward and collect.
Why is the world buying gold like crazy?
Why is the world buying gold like crazy? There are two main reasons.
The first reason is the so-called "buying gold in troubled times".
The world is facing a huge problem in 2022, that is inflation. The purchasing power of currency in developed countries and large developing countries such as China is relatively strong, but for countries such as Turkey and Argentina where the inflation rate is close to 100%, the purchasing power of banknotes has fallen really fast.
Turkey's inflation rate is as high as more than 70%
So for residents of these countries, buying precious metals assets such as gold has become a necessity, because gold is regarded as the safest asset and is much better than the US dollar whose credibility is constantly declining. In addition, some special countries have greater demand for gold, such as Russia.
In Russia, the demand for gold by ordinary residents is about five times that of last year. Because Russia has been subject to economic and trade sanctions by the United States, residents have gold in their hands at this time. Their sense of security is not comparable to that of rubles or even U.S. dollars. . After all, gold can be exchanged for U.S. dollars at any time, but U.S. dollars do not necessarily buy gold.
The United States imposed sanctions on Russia, and Russia suffered a double kill on its stocks and bonds!
In addition, 2023 is a year of recession recognized by economists and research institutions in many countries. The economic recession next year has basically become a certainty, which will lead to a further increase in global demand for gold . An economic recession means that there are no good investment opportunities in the market. Buying gold to seek safety and capital preservation has also become an investment choice for ordinary residents.
The second reason is that the central bank is buying gold aggressively in pursuit of de-dollarization.
In recent decades, countries and central banks around the world have been under the threat of dollar hegemony. However, although the United States used dollar hegemony to punish many small countries such as North Korea and Iran, it did not use the weapon of dollar hegemony against big countries.
But since this year, as the United States adopts dollar hegemony over Russia, Russia's hundreds of billions of dollars in foreign exchange reserves have been blocked, and the national wealth has been blocked by the United States with just a click of the mouse.
The Central Bank of Russia has been sanctioned by US dollar weapons
Many countries and central banks are thinking . Since even Russia, a big country with nuclear weapons , will be sanctioned by the hegemony of the US dollar, will one day be sanctioned by the United States because of disagreements with the United States?
In this case, why should I spend all my money on US dollars? Wouldn’t it be safer to reserve some currencies of other countries?
This has given rise to the global central bank's demand for "de-dollarization" . Central banks need to consider from the perspective of national security and reserve an asset that cannot be blocked.
After much deliberation, there is only one asset that is more suitable, and that is gold.
In the third quarter of this year, the Central Bank of Turkey purchased 31 tons of gold, accounting for nearly 30% of its total gold reserves. Uzbekistan and Qatar followed closely behind and also purchased large amounts of gold as reserves. In addition, the Bank of Japan and China also purchased varying amounts of gold.
The Central Bank of Turkey announced a large purchase of gold
From the data, the gold purchase volume of global central banks in the third quarter of this year has reached 399.3 tons, which is about 5 times that of the same period last year. If you add up the purchases in the three quarters, you will find that its cumulative net purchases have exceeded and reached the maximum since historical records began in 1967.
Simply put, the lower the credit level of the U.S. dollar as a currency, the more worried people are about the "thunder" of U.S. dollar hegemony, and the greater the purchase intensity and demand for gold.
Indiscriminate currency issuance and arbitrary sanctions on other countries have led to the gradual collapse of the credibility of the US dollar.
As an asset without an issuing entity, gold is naturally "no international currency". For most small and medium-sized countries, gold is indeed a reserve asset to prevent the threat of US dollar hegemony.
Experts from precious metal investment institutions said that in 2023, global central banks may continue to purchase gold as reserves because everyone's credibility in the US dollar is gradually losing.
Summary
In general, 2022 and 2023 are both extraordinary years. The conflict between Russia and Ukraine has caused global central banks to be "afraid" of the hegemony of the US dollar, and countries have voted with their feet.
Countries are selling U.S. U.S. debt while accelerating their purchases of U.S. dollars. Especially in the third quarter, when the Federal Reserve raised interest rates the most fiercely, the amount of gold purchased by central banks around the world increased significantly and even set a historical record.
In addition, buying gold is also a good investment that can maintain and increase value in the past two years. Because of the global economic recession, the value-preserving properties of precious metals have attracted the attention of many investors.
Europe and the United States are still in the midst of an inflation crisis
For some countries in the midst of an inflation crisis, gold is also an indispensable store of value. You must know that even now, inflation in Europe exceeds 10%, and in the United States it is around 7.1%.
Experts predict that the price of gold will still be high in 2023. So, will you consider buying gold next year? (This article does not constitute any investment advice)
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