The total quantity of gold held in reserves by central banks topped 36,000 tons for the first time since 1990, data from World Gold Council has shown. This increase follows growth in the banks’ reported holdings of the asset by 4,500 tons over the past decade.
Dollar’s Decline a Boon for Gold
The amount of gold held in reserves by central banks as of September 2021 grew to a new high of 36,000 tons for the first time since 1990. According to the World Gold Council (WGC), this increase in central banks’ gold holdings to a 31-year-high came after the institutions successfully added 4,500 tons of the precious metal over the past decade.
In a report published by Nikkei Asia, the WGC attributes central banks’ growing preference for gold to the U.S. dollar’s decline. The report explains how the U.S. Federal Reserve’s significant monetary relaxation has resulted in an increased supply of U.S. dollars. This increase in the supply of dollars has, in turn, caused the value of the dollar against gold to drop sharply in the past decade, the report asserts.
To support the theory that central banks are increasingly opting for gold, the report points to Poland, whose central bank is believed to have purchased about 100 tons of gold in 2019. Concerning the National Bank of Poland (NBP)’s purchase of the gold, the institution’s president Adam Glapinski is quoted by reports pointing to the fact that the precious metal is not directly tied to any nation’s economy and that this enables it to endure global unrest in markets.
Gold Free From Counterparty Risks
In addition to being relatively immune to violent changes in financial markets, gold is commonly thought to be free from credit and counterparty risks. This, according to the report, is one of the reasons why Hungary beefed up its gold reserves to over 90 tons.
The report also suggests that central banks in emerging economies are similarly trying to limit or reduce their reliance on the dollar. In addition, these central banks are building up their gold reserves in order to limit their respective economies’ exposure to their depreciating currencies.
Prior to 2009, many central banks preferred increasing their holdings of dollar-denominated assets such as U.S. Treasury securities with proceeds from gold sales. However, following the 2008 financial crisis that resulted in the outflow of funds from United States government bonds, confidence in the U.S. dollar dropped, the report said.
As WGC’s September data suggests, gold is again becoming a tool used by central banks to protect their assets.
What are your thoughts on this story? Tell us what you think in the comments section below.
Terence Zimwara
Image Credits: Shutterstock, Pixabay, Wiki Commons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
