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Updated 04:56 CEST 26/09/21

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Central banks regain appetite for gold


8 Jul 2021, 10:47 a.m. Michael Pinson

Gold has seen a small boost in price this week following further signs that central banks are once more buying gold. Gold reserve purchases had largely stopped throughout 2020, as central banks focused on the economic toll of Covid-19, but there are increasing signs that purchases have resumed.

Gold has experienced a price gain this week, passing the $1,800/€1,500 per ounce mark to levels last seen in mid-June. Although it is still some way from $1,900 per ounce as seen at the start of June, the gains put gold 2.9% up from last week’s low of $1,751.80, and show that demand for the precious metal is still strong.

While inflation remains a key concern for investors, it is also on the minds of central banks. Many such institutions are keen to assert inflation is transitory, but they will undoubtedly be watching key metrics for signs of problematic price rises. Steel and oil have both continued to rise in price in recent weeks, and each new release of manufacturing data shows a global supply chain buckling under demand, driving prices even higher.

With the risk of inflation high, as well as other economic risks caused by the pandemic, a number of central banks have resumed adding more gold to their national reserves. Serbia is one such country, with reserves currently sitting at 36.3 tonnes. Serbia’s President announced that they will be increasing their gold reserves to 50 tonnes. As the national bank of Serbia put it “Long term, gold is the most significant guardian and guarantor of protection against inflationary and other forms of financial risks”.

May saw 56.7 tonnes of net gold reserve purchases according to the latest figures released by the World Gold Council, meaning the past four months have all seen gold reserves growing globally. Hungary and Thailand took the top spots, with an impressive 150 tonnes purchased between the two of them across that four-month period.

Turkey, Brazil, Kazakhstan, Poland and India have also all added more gold to their reserves. Other countries such as Ghana have also announced plans to increase their reserves in the coming months and years. Many countries are keen to move away from the Dollar, and gold provides a perfect safe haven to diversify national reserves without moving to another potentially volatile currency, whilst also protecting national wealth from inflation.

These large-scale purchases will help support gold in the months ahead with markets remain split on inflation, and demonstrate gold’s safe haven appeal remains strong among central banks.

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