Central Banks Hedging US Dollar Risk with Gold, Pushes Demand to 3-yr High with Record-Breaking Purchases

  • Central banks hunger for gold sees a growth of 8% y-o-y
  • Poland makes massive 100-ton purchase while several countries added at least a ton
  • Concerns about economic growth, rising trade & geopolitical tension making bullion attractive

Central banks continue to load up on gold in the first half of 2019, pushing the demand to a three-year high of 2,181.7 tons, according to the World Gold Council.

Nations added 374.1 tons in the first six months as China and Russia kept building gold reserves with Poland making a massive purchase.

Since 2009, nations have expanded their gold holdings by about 14%, with the hoard now valued at roughly $1.6 trillion.

The trend is further expected to continue, a recent central banks’ survey showing 54% of respondents expecting global holdings to rise in the next 12 months.

Poland Makes Massive 100 Ton Purchase while Several Countries Added at least a Ton

Poland bought 100 tons, the most by a central bank in the second quarter, since India’s purchase in 2009. This massive addition followed a small purchase made by Poland last year.

This purchase, National Bank of Poland President Professor Adam Glapiński indicated has been a strategic one with the intention to safeguard the financial security of the country.

Countries like Russia and China are regular buyers but unlike them, Poland’s isn’t aided by the mining industry, said Alistair Hewitt, director of market intelligence at the council.

“Poland’s buying isn’t just opportunistic,”

he said.

“It is supported by the same underlying motivation that many central banks share, which is as a store of value, diversification and, in some instances, to protect themselves from political risk.”

Russian gold reserves rose by 38.7 tons in Q2 while Chinese gold reserves grew by 74 tons in H1. Turkey and Kazakhstan continued to increase gold reserves, while India (17.7t), Ecuador (10.6t), Colombia (6.1t) and the Kyrgyz Republic (2t) added at least a tonne during H1.

Concerns about Economic Growth, Rise in Trade & Geopolitical Tension making Bullion Attractive

Central banks around the world are adding to their reserves as economic growth slows down, trade wars intensify, geopolitical tension rise, and authorities diversify away from the dollar.

This has gold surging to a six-year high in July as concerns about the economy and expectations for lower US interest rates boosted gold’s appeal.

Bullion is a traditional store of value that is used by investors and now aggressively by central banks to hedge the risks associated with the economy.

Recently, Ray Dalio, hedge fund kingpin and founder of Bridgewater Associates warned investors to find “the next-best currency or storehold of wealth” as a crisis looms on the horizon.

With Bitcoin, a digital asset like gold, working towards becoming a store of value, we might get to see it as a diversifying asset in central banks’ portfolio as well.

Though it is still far off in the future, Bitcoin has shown characteristics of being an SoV as recognized by China as well. We are on pace to that status as Bitcoin makes its way to a trillion-dollar market capitalization.

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