A recent study shows that central banks around the world are loading up on gold in an effort to stay ahead of inflation. People have long viewed gold as a store of value and a hedge against inflation, but Bitcoin has largely outperformed it this year.
According to a recently published report by the independent US investment management firm Invesco, central banks are buying gold.
Central banks hold gold
The 2023 Invesco Global Sovereign Asset Management Study released in July revealed that 85 sovereign wealth funds and 57 central banks collectively manage $21 trillion.
“Amid continued rising inflation and real interest rates, investors are resetting their portfolios,” she said.
Coinbase’s former CTO, Balaji Srinivasan, comment About the summary of the research:
In short, they are buying gold, holding it in vaults, and preparing for high levels of inflation.
Invesco reported that in 2022, central banks made record purchases of gold with net acquisitions of 1,136 tons. The year marked the twelfth consecutive year of a net increase in the world’s central banks’ gold holdings.
Moreover, the central banks of China and Turkey were very aggressive buyers taking 20% of this total. “However, other central banks, particularly in the Middle East and emerging markets, have also been notable buyers,” he added.
The report added that portfolio managers identified inflation as a major risk. He pointed out that about two-thirds of central banks seek to protect their portfolios from global inflationary trends.
“Increased gold allocation was the most prevalent method, with 69% of central banks countering global inflation through gold allocations.”
Central banks were unanimous in their reasons for loading gold, noting that it was a safe haven asset.
Moreover, a significant proportion of central banks have expressed concern about the precedent set by US sanctions. They noted that this makes gold more attractive.
In addition, physical gold bars are much more attractive than exchange-traded products such as futures contracts.
Gold vs Bitcoin
“The reserve role is being taken up by hard assets like gold and Bitcoin, as BlackRock is now acknowledging,” Srinivasan said. He said the trading roles are being taken up by currencies like the Chinese yuan and Indian rupee as central banks dump dollars.
Central banks are still very wary of digital assets. But there is no doubt that bitcoins have been massively outperforming gold lately.
Since the beginning of the year, bitcoin prices have increased by more than 80%. On the other hand, gold prices only managed 4.6% over the same period.
Stablecoin issuer Tether has also recently promoted its gold-backed asset XAUT as a hedge against inflation.
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