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China’s economy is struggling, leading to a surge in gold purchases as a safe-haven asset.
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Central banks are on a gold-buying spree, contributing to record-high spot gold prices.
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Other central banks are also buying gold to diversify their assets on the back of a strong US dollar.
China’s economy is facing challenges, prompting individuals to seek out gold as a safe-haven asset amid economic uncertainties. This heightened demand for gold has propelled the precious metal to record highs in terms of pricing.
The People’s Bank of China has been actively increasing its gold reserves, adding 60,000 troy ounces in April alone, as indicated by official data released recently. This consistent trend of gold accumulation by the central bank has persisted for the past 18 months.
Driving Factors Behind Gold Purchases
Aside from economic uncertainties, the surge in gold interest is partially a response to the strength of the US dollar. The rising value of the dollar has made imports more costly for emerging economies like China, further incentivizing the move towards gold as a hedge.
Central banks from various countries, including China, Turkey, and India, have significantly increased their gold reserves. This strategic diversification move is seen as a means to counter the challenges posed by higher yields and a robust US dollar, according to the World Gold Council.
Global Central Banks’ Gold Buying Trend
The World Gold Council reported that central banks globally purchased 290 tons of gold in the first quarter of the year, marking a record-setting start to the year in terms of gold acquisitions. Emerging-market central banks, such as those in Kazakhstan, Oman, Kyrgyzstan, and Poland, are among those actively buying gold.
Political considerations also play a role in central banks’ decision to diversify their reserves. Nations with concerns about US economic policies or potential sanctions have started to shift their reserve mix away from the US dollar, leaning towards gold as a safer alternative.
Potential Impact on the US Dollar
The ongoing trend of central banks accumulating gold could have long-term implications for the US dollar. A continued strengthening of the dollar may lead to a diminished role as the global reserve currency, potentially prompting borrowers to seek alternative options if access to USD becomes more expensive.
Currently, the spot gold price is hovering around $2,330 per ounce, slightly lower than its peak above $2,400 per ounce recorded in April.
