Central banks around the world continue to increase gold reserves

Central banks continue to increase gold reserves globally in 2023. This indicates continued demand for gold, which is seen as a safe haven in uncertain times. Recent developments show that gold continues to play an important role in central banks' currency management process, especially in times of uncertainty and volatility in financial markets.
 

Central banks buy gold

A notable trend in recent years has been the purchase of gold by central banks. This trend began in previous years and has continued into 2023. The amount of gold purchased by central banks in 2022 is greater than in any other year in the past decade, the year 2022 marked a record year with a total purchase of 1,136 tonnes of gold by central banks worldwide. The first quarter of 2023 also shows strong demand with central banks continuing to buy gold at a record pace. 
 

Gold as a safe haven

One of the main reasons behind central banks increasing gold reserves is the fact that gold is seen as a safe haven. This is because gold has no counterparty and currency risk. In addition, it cannot be reprinted and has also proven to be a safe asset in the past. These properties make gold attractive as a store of value and a protection against inflation and economic uncertainties.
 

Poland buys gold

An interesting development in 2023 is the purchase of gold by the Polish central bank. In April 2023, the Polish central bank bought almost 15 tonnes of gold, the largest purchase in almost four years. With this, Poland wants to increase its gold reserves to prepare for the most adverse conditions. Other countries are also following this strategy; Hungary and Serbia, for example, have withdrawn gold back to their own countries to have more control over their reserves. 
 

Turkey sells gold

Turkey, on the other hand, is taking a different approach. To meet growing domestic demand for gold, Turkey sold an estimated 80.8 tonnes of gold in April this year. This stems from the need to limit gold imports to reduce the negative impact on the country's current account. The strong demand for gold in Turkey is a result of high inflation and the quest to protect the purchasing power of savings.
Indeed, the Turkish lira depreciated again against the US dollar on Monday. This drop followed the re-election of Erdogan who managed to win the second round of presidential elections on Sunday. The lira quoted around a new low against the dollar as investors fear Erdogan will maintain his too-tight grip on Turkish financial markets. Economists at US banks Morgan Stanley and Wells Fargo expect the Turkish currency to depreciate further should Erdogan stick to the unorthodox policy of keeping interest rates low in the country despite high inflation.
 
 

Gold reserves 

These developments show that central banks in different countries follow different strategies with regard to their gold reserves. Some countries choose to increase their gold reserves to prepare for uncertain times, while some countries choose to sell gold to meet domestic needs. According to a recent survey by the World Gold Council, there is, however, growing optimism among central banks about the future role of gold. More and more central banks are indicating that gold will account for a larger share of their total reserves, reflecting growing confidence in the value and role of gold in an era of economic uncertainty.
Central banks in different countries thus each follow a different strategy with regard to their gold reserves. For instance, some countries choose to increase their gold reserves to prepare for uncertain times, while others choose to sell gold to meet domestic needs. According to a recent survey by the World Gold Council, there is growing optimism among central banks about the future role of gold, with more and more central banks indicating that gold will account for a larger share of their total reserves. This reflects growing confidence in the value and role of gold in an era of economic uncertainty.
 

Conclusion

All in all, gold remains a sought-after asset for central banks in 2023. Rising gold reserves show that central banks continue to view the precious metal as a valuable diversification of their reserves and a tool to protect against potential risks and volatility in financial markets. In times of uncertainties, gold plays a special role as a reliable and timeless form to preserve value.
Disclaimer: The Silver Mountain does not provide investment advice and therefore this article should not be considered as such. Past results do not guarantee future results.
 
On The Silver Mountain blog, we share information on the current economic situation, gold and silver prices and other relevant information related to precious metals. In this blog article, we take a closer look at the effect of the interest rate hike for gold and silver and the return of gold and silver relative to the stock market. 
 

Effect of interest rate hike gold and silver

When we talk about inflation, we often refer to inflation based on the consumer price index, CPI for short. The CPI reflects the price trend of a standard basket of goods and services that households purchase for consumption. For instance, inflation in the US was 7.1% in the month of November and 7.7% in the month of October (source: global-rates.com). In the Netherlands, inflation was 9.9% in the month of November and as high as 14.3% in the month of October (source: CBS.nl).
Last week, the Federal Reserve System (FED) raised interest rates by 50 basis points. Jerome Powell, chairman of the FED, signalled a further increase in interest rates to get inflation under control. By this, Powell is referring to another series of interest rate hikes in the first quarter of 2023.
The ECB also raised interest rates by 50 basis points last week. An increase of 75 basis points was expected. At this, Christine Lagarde, ECB president, signalled a further increase in interest rates to continue the fight against inflation. Never before had interest rates been raised so quickly. The ECB forecasts inflation of 6.3% in 2023 and only around 2% in 2025. 
 

Gold and silver out perform equities in 2023

In euro terms, the price of gold posted a 5.2% return this year. An investment in silver did even better, rising 7%. With that, both precious metals outperformed an investment in equities. For instance, the AEX stands at a loss of more than 10% this year and the S&P is as high as 17.8%.
Investments in physical gold and silver fared much better than an investment in gold mines. The index of gold mines stands at an 8% loss in euros this year. The euro itself lost about 7% against the US dollar in 2022. If you had left your money in the bank, this caused an average inflation rate (in the Netherlands) of 10.03%. At an average annual inflation rate of 10%, the purchasing power of your assets decreases by as much as 50% over a 6.5-year period. 
 

Gold and silver forecast 2023

Michael Widmer, Bank of America analyst, expects silver prices to rise in 2023. Widmer also sees gold benefiting from a so-called pivot from the FED. In addition to the Fed's monetary pivot, the bank expects silver to benefit from a pick-up in demand for silver from industry. Industrial demand for silver to produce electric cars and solar panels is at an all-time high and will only grow in the coming years.
Saxo Bank, an investment bank in Denmark and part of the Saxo Bank Group, argues that the Fed's rate hike and tightening of monetary policy has gone too far, forcing the Fed to stimulate again at a later date. As a result, gold prices are expected to continue rising in 2023.
Disclaimer: The Silver Mountain does not provide investment advice and therefore this article should not be considered as such. Past results do not guarantee future results.