Emerging economies, like China and its allies, have been hoarding gold to diversify from the US dollar.
But they’re not the only gold buyers.
Even central banks from advanced economies are planning to load up on gold, according to a World Gold Council survey released on Monday.
This enthusiasm for the yellow metal comes even though the spot gold price is hovering at record levels, around $2,330 an ounce, after hitting nearly $2,450 last month.
The WGC survey conducted between February and April found that 29% of 70 central banks — a record share — are planning to buy gold over the next 12 months.
Among the central banks, about 15% of those in advanced economies plan to do so — the most since 2019. Meanwhile, about 40% of emerging market central banks said they’ll buy in the coming year.
The central banks’ key reasons for more gold purchases include rebalancing their reserves and hedging against risks such as rising inflation, US dollar exposure, and market instability. Eight out of the 20 central banks also cited higher economic risks from countries where reserve currencies are from, because of issues like the rising US budget deficit.
In contrast to their enthusiasm for gold, 56% of central banks from advanced economies said they expect the dollar’s share of global reserves to fall over the next five years. Nearly two-thirds of central banks from emerging economies expected the same.
Shrinking US dollar reserves
The WGC’s annual survey reflects the sentiment of central banks amid intense discussion about the dollar’s dominant role as the world’s reserve currency.
Discussion has been gaining ground following the West’s sweeping sanctions against Russia over its 2022 invasion of Ukraine. Other countries worried that they, too, could be locked out of the US dollar-based financial system.
However, king dollar is so entrenched and pervasive in the world’s financial system that very few people think it can be dethroned.
Even so, a group of major emerging countries is now working on a way around the dollar.
And while the dollar is still by far the most dominant currency in the foreign exchange reserves of the world’s central banks, the greenback’s share in these reserves — after exchange-rate and interest-rate adjustments — declined from over 70% in 2000 to about 55% in the last quarter of 2023, according to a recent International Monetary Fund report.
The IMF termed the decline in the US dollar’s share of global reserves “stealth erosion.”
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