The Australian bank, ANZ says that it expects gold to continue to benefit from a major supporting factor until at least the end of the current decade. Its analysts say that the recent surge in central bank demand is not a temporary trend – rather it is being driven by a clear desire to diversify away from bond holdings.
The bank notes that Federal Reserve interest rate increases have dealt a double blow to some central banks, with bond prices impacted and higher bond yields and a stronger dollar index pushing up the cost of servicing debt. For some nations, this has led to as much as a 50% decline in their foreign exchange holdings.
Against this backdrop, gold has emerged as a beacon of promise and ticks several key boxes for central banks globally. Thanks to its traditional status as a safe store of wealth, it provides central banks with surety in the face of increasingly turbulent international relations and geopolitical uncertainty. It also provides a hedge against the creeping dollar index and allows for diversification away from the greenback; something of primary importance to many emerging nations along with members of the BRIC trading block.
As we have seen throughout the last 24 months, the People’s Bank of China has led the acquisitions with notable growth in its gold holdings. This is something we can expect to see much more of over the next six years, say ANZ analysts. “Central banks could purchase over 600 tonnes of gold annually until 2030, to take its share in their foreign reserves to 10%. China will likely occupy the lion’s share in global official gold demand,” they note.
What’s more, with a sustained and collective shift away from the dollar, gold’s position in those central bank vaults is only set to grow in both volume and importance. “The global monetary system is evolving, with EMs pushing their own currencies for international payments,” ANZ analysts say.
“China is reportedly settling trades with Russia in RMB and has made clear its intention to internationalise its currency. Other regional players, like India, are also pushing to settle foreign trade in their own currency. This evolving multi-currency system will see a gradual shift in foreign currency reserve portfolios, and gold will play an extremely important role as this develops.”
The stability and enduring value of gold make it a very attractive prospect not just for central banks, but for investors too. Central bank demand played a pivotal role in supporting record gold prices last year and there is no reason to believe this will change in 2024. ANZ says it expects gold to set a new record around £1,737 by the end of the year. With prices currently trading around £1,594 there is a very clear and real opportunity to buy before a new high hits. Don’t delay. Buy gold now.
