According to the Swiss banking giant UBS, there is a huge appetite for physical gold among central banks, while more and more countries are also moving away from the US dollar. These are, of course, mainly countries that do not belong to ‘The West’.
In a new report UBS says central banks are likely to buy 700,000 kilograms of gold this year, worth about $48.74 billion.
Geopolitical concerns
Central banks do this, according to UBS, because of inflation, which is protected against the natural scarcity of gold and the current geopolitical tension. “Last year marked the 13th consecutive year in which central banks bought more gold than sold and the largest annual demand ever,” said UBS.
In 2022, central banks bought 1,078,000 kilograms of gold, more than double the 450,000 kilograms of 2021. Based on the data from the first quarter of 2023, we seem to be reaching 700,000 kilograms this year.
That is much, much higher than the average since 2010, which is below 500,000 kilograms. “We believe this trend of central bank buying will continue amid geopolitical risks and a pick-up in inflation,” UBS said in the report.
Away from the dollar?
The bank also thinks that fewer and fewer countries are interested in holding their reserves in US dollars, because the United States is increasingly using its currency as a weapon. With that, UBS is of course referring to the hassle surrounding Russia, whose reserves were frozen during the war that the country was waging in Ukraine.
The rest of the world has seen this and for some countries it may be a signal that it is better to stop saving in US dollars. For example, China and other countries in the BRICS alliance will think twice before adopting US dollars.
“America’s decision to freeze Russian reserves in response to the war in Ukraine may have implications for central banks’ long-term strategy,” UBS said in the report. So far, Bitcoin does not seem to play a role in this.