Central Banks Boost Gold Reserves

3.11.24 - Central Banks Boost Gold Reserves

Gold last traded at $2,184 an ounce. Silver at $24.49 an ounce.

Central Banks Boost Gold Reserves to Diversify from the Dollar -Yahoo! Finance

Powell might not be overly worried about inflation - with his recent comments reiterating the Federal Reserve is on track to cut rates this year - but other central banks are not so relaxed. Gold's new high signals global central banks are likely accumulating the precious metal in an effort to diversify away from the dollar, as persistently large fiscal deficits threaten to further erode its real value and lead to more inflation.

Gold's move in recent days has been broad as well as pronounced (as well as hinted at by low gold vol), with the precious metal making 50-year highs versus three-quarters of major DM and EM currencies. The biggest holdings of gold after jewellery are for private investment - ETFs, bars and coins - followed by central banks' official reserve holdings.

In recent years the swing buyers have been ETFs, which hold about 2,500 tonnes of gold. But ETF holdings have been falling even as the dollar price of gold has been rising.

The dollar has been stable and real yields (which anyway have a non-linear relationship with gold) are higher over the last three months. The bulk of seasonal buying, for instance Diwali in India, is likely behind us. Further, silver has not participated in the rise. It's therefore a reasonable supposition the official sector, i.e. central banks, has been a significant driver of gold's recent ascent to new highs.