As of September 2021, the amount of gold in central bank reserves surpassed 36,000 tonnes for the first time since 1990. The World Gold Council (WGC) says that this 31-year-old increase in central bank gold holdings came after institutions added 4,500 tonnes of precious metal over the last decade.
The WGC attributed the decline of the U.S. Dollar to central banks’ increasing preference for gold in a report. This report describes how the U.S. Federal Reserve’s substantial monetary relaxation has led to an increase in U.S. dollar supply. According to the report, this has led to a sharp decline in the dollar’s value against gold over the past decade.
The report cites Poland as an example of a central bank that is believed to have bought about 100 tonnes of gold in 2019. This supports the idea that central banks are increasingly buying gold. The National Bank of Poland (NBP), which purchased the gold, is quoted as saying that its president Adam Glapinski cites reports that he points out that the precious metal isn’t directly tied to any country’s economy. This allows it to withstand global unrest.
Gold is free from any counterparty risks
Gold is thought to be immune to financial market volatility and free of counterparty risk. According to the report, this is one reason why Hungary increased its gold reserves by over 90 tons.
According to the report, emerging economies’ central banks are also trying to reduce or limit their dependence on the dollar. These central banks also build up their gold reserves to limit the exposure of their economies to depreciating currencies.
Many central banks had preferred to increase their dollar-denominated assets, such as U.S. Treasury securities and proceeds from gold sales, prior to 2009. The report stated that confidence in the U.S. dollar plummeted after the 2008 financial crisis, which saw funds fleeing from US government bonds.
WGC’s September data shows that central banks are using gold again to protect their assets, as WGC’s September data indicates.