Why Countries Are Increasing Their Gold Reserves
Gold has always been seen as a financial driver of the economy. It has a great financial value and impact, which differentiates it from the other metals. This significance will only increase more and more as the central banks of the world are further increasing their gold reserves. According to a report by World Gold Council, the world’s central banks are holding almost one-fifth of all the gold that was ever mined. This tells you how much value the golden metal holds in today’s world and why people still prefer investing in gold.
IMPORTANCE OF GOLD FOR RESERVE BANKS
Gold, together with government bonds, acts as an essential source of confidence in a country and in all financial realities since it has no credit or collateral concerns.
The fact that gold has an inverse connection with the US dollar, another key reserve commodity, adds to its attraction. Gold often climbs when the dollar falls in value, allowing central banks to secure their holdings during periods of market turbulence.
POSSESSION OF GOLD BY COUNTRIES
Economic powerhouses like the United States, Germany, England, and France have pulled out from the race of accumulating gold reserves. Instead, they’re more focused on retaining the gold they already have. Several new countries have emerged in the race of gold accumulation. The front runners are Russia, India, China, and Turkey. They still have a long way to go to catch the US or the European powerhouses.
THE SUPPLY FACTOR PLAYS A HUGE ROLE
Unlike sugar or cocoa, gold isn’t consumed. All the gold that has ever been mined might still somehow be on earth. Moreover, its quantity is increasing day by day due to the mining of more gold. But still, it holds a high value.
When used in electronics or bought as jewelry, the quantity of gold is consumed. Sometimes this consumption is huge and sends shockwaves across the world. This increases the value of gold in the market. Hence to balance the supply and demand of gold, governments try to increase their gold reserves. A good time to invest in gold coins is when the demand for gold is lower; this will decrease its price.
EXCHANGE-TRADED FUNDS
Exchange-traded funds are also a major buyer of gold and other precious metals in today’s market. Many gold investment companies have been formed, ensuring the constant circulation of gold for the long term. These companies work like stocks and reflect the prices of gold.
GOLD ALWAYS RETAINS ITS VALUE
Unlike fiat currency, gold is known to retain its value. This can be compared even from a historical point of view. In the era of Emperor Augustus, Roman soldiers were being paid 38.58 ounces of gold per year. If you compare those prices to now, they’ll still hold a great value in today’s world. You can see a major difference if you compare it with the value of fiat currency.
These are some major reasons why the countries value gold so much and are still busy accumulating it.
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