Why Are Countries Increasing Their Gold Reserves?
Countries across the globe are bolstering their gold reserves. As of September-2021, sovereign gold reserve holdings continued to surge, with Kazakhstan, Russia, and Turkey spearheading the charge. But it’s not just these nations that seem to be proactively diversifying into gold — many others are also surging the yellow metal into their reserves. From China investing over billions into its reserves to Venezuela, Colombia, Mexico, Ecuador, and even Canada beating out previous years for gold purchases.
Is this part of a strategic plan, or is it a mere coincidence? Are there geopolitical forces at play, or is there an economic reason behind this seemingly uncoordinated move by China and Russia? Find out about this in this blog.
Moving Away From the Dollar
The World Gold Council has reported a rise in the number of gold reserves held by central banks, going to 36,000 tonnes as of September 2021. Countries are buying to diversify their reserves and move their relevance away from the dollar. Some countries have even gone as far as repatriating their gold back from overseas vaults. Germany just made headlines by moving a portion of its bullion back to Frankfurt under its plan announced in 2013. France, Germany, and Italy have shifted a considerable portion of their reserves away from the U.S. dollar (USD).
The introduction of trade barriers and a rise in protectionism have created concerns among businesses globally, which has spilled over into global financial markets, creating pressures on global equity markets. One good example of it is the current trade war between China and the United States. The pandemic has taken the economic uncertainty to a whole level.
Financial volatility is at an all-time high. We’ve had declining markets in real terms, the longest economic downturn since the 1930s, rising geopolitical tensions, central bank interventions, and the emergence of new digital currencies. More and more people are speaking about why the current system might not be sustainable anymore.
With a roller-coaster of a financial economy, currencies, bonds, and stocks are not performing well. Global investors are looking for safe places such as gold to put their money. Gold provides security against the ups and downs of an embattled international economy.
The rising geopolitical tensions worldwide have the world at its edge and helped gold boost its luster. From Russia and the west fighting it out over Ukraine to the recent American pullout from Afghanistan and the never-ending conflicts in the Middle East, a single flash event can disturb the whole world’s supply chain and send the world oil prices soaring.
These geopolitical risks are significant: they can accelerate the current market and economic instability and even lead to new conflicts. Due to this, China, India, and Russia have been some of the biggest purchasers of physical gold bullion.
Protection Against Inflation and Other Financial Risks
Due to supply chain disruptions because of the pandemic, the world is amidst hyperinflation. Currencies are losing their values fast, and people are losing their purchasing power, affecting their retirement funds and living standard. Inflation is an important factor when it comes to protecting your financial future.
We live in a world where the financial markets can be extremely volatile: interest rates, the value of stocks, exchange rates, and many other factors that are hard to predict. Gold has stood the test of time, and today it is considered an inviolable haven for people worldwide. By investing in gold, people can protect their savings from these fluctuations and loss of purchasing power.
The Effects of the Global Financial Crises
A decade ago, the 2008 global financial crisis came out of nowhere. Global authorities responded with unprecedented measures to contain the systemic crisis. Since then, central banks have been engaged in zero-interest-rate policies (ZIRP). Due to such measures, investors have found returns hard to come to by, which have pushed up asset prices in a variety of markets including REITs, and precious metals.
The Rising Middle Class Wants More Gold Jewelry
The emerging middle class in countries such as China and India increasingly accounts for a large portion of global consumer spending. In these countries, traditional cultural values favor gold over other investment opportunities. The rise of a new consumer base with increased discretionary income has demanded more gold jewelry. With combined populations of more than 3 billion, it’s no wonder that they are one of the fastest-growing markets for gold jewelry.
Future Applications of Gold
Gold is the most malleable metallic element and a good thermal and electrical conductor. Today, gold is still used to create some of the most durable and lasting pieces of technology available, including high-end smartphones and tablets. Gold is also being used in futuristic technologies such as nanotechnology with uses in engineering and medicine.
Want to Invest in Precious Metals such as Gold to Make Money?
Investing in gold is a wise decision for those looking for better returns and diversification of their investment portfolio. With its limited supply and Uncertainty in the world is on the rise. We don’t know what’s going to happen next. And this unknown is often causing some serious ripples in financial markets. With several important political decisions on the horizon, it will be best to bet on gold.
If you’re looking at investing in gold, we at Orion Metal Exchange can help. We are one of the most reputable precious metals investment dealers. We have been serving people for the past 50 years to invest their money in several precious metals such as silver, gold, palladium, platinum bullion, and helping people plan for their retirement with gold and silver IRA.
You can also call us at 1-800-559-0088 to book an appointment with our highly professional team of advisors.