Central banks around the world are buying gold to fight inflation, with 85 sovereign wealth funds and 57 banks managing $21 trillion. In 2022, central banks made record purchases of gold with net purchases of 1,136 tons, marking the 12th consecutive year of net increase. Despite Bitcoin’s performance, central banks remain wary of digital assets, opting for gold as a safe haven asset and inflation hedge.
Central banks around the world are betting on gold in an effort to beat inflation, according to recent research. People have long regarded gold as a store of value and a hedge against inflation, but Bitcoin has vastly outperformed it this year. According to a recently published report by the independent US investment management company Invesco, central banks are buying gold.
Central Banks Buy Gold
The Invesco Global Sovereign Asset Management Study 2023, published this month, revealed that 85 sovereign wealth funds and 57 central banks collectively manage $21 trillion: “Amid persistently high inflation and real interest rates, investors are recalibrating [investment] portfolios.”
Former Coinbase CTO Balaji Srinivasan also commented on the investigation that “they are buying gold, keeping it in vaults, and preparing for high levels of inflation.”
Invesco reported that in 2022, central banks made record purchases of gold with net purchases of 1,136 tons. That was the 12th consecutive year of a net increase in gold holdings for the world’s central banks.
Furthermore, the central banks of China and Turkey were very aggressive buyers and took 20% of that total. “However, other central banks, particularly in the Middle East and Emerging Markets, were also notable buyers,” Srinivasan added.
According to WGC data, the largest regional central bank gold holdings are in Western Europe, with 11,776 tons, 33% of all gold reserves within the EU and neighboring countries such as Great Britain.
North America ranks second with 8,133.47 tons, in the exclusive hands of the US Federal Reserve. Third are Asian central banks with total gold holdings of 5,704.22 tons. The last is the Latin America/South America and the Caribbean region, with gold reserves of only 614.57 tons.
The report added that managers identified inflation as a key risk. About two-thirds of central banks were seeking to protect their portfolios from global inflationary trends: “Increasing the gold allocation was the most prevalent method, with 69% of central banks offsetting global inflation through gold allocations.”
Central banks were unanimous in their reasons for buying gold, stating that it was a safe haven asset. A substantial percentage of central banks express concern about the precedent set by US sanctions. This makes gold even more attractive, they noted. Physical gold bars are more attractive than exchange-traded products such as futures.
Gold vs. Bitcoin
Srinivasan said that the “reserve role is being taken over by hard assets like gold and Bitcoin, as even BlackRock now admits,” adding that “Business functions are taken over by currencies like the Chinese yuan and Indian rupee as central banks de-dollarize.”
Central banks remain very cautious with digital assets. But there is no doubt that Bitcoin has vastly outperformed gold recently. Since the beginning of the year, BTC prices have risen more than 80%. Gold prices, on the other hand, have only managed 4.6% over the same period. Stablecoin issuer Tether has also recently touted its XAUT gold-backed asset as an inflation hedge.
By Marina Meza
