Central banks around the world are doubling down on their gold holdings as they seek to hedge against inflation, even in the face of Bitcoin’s exceptional performance this year. A recently published report by Invesco, a prominent investment management company, has shed light on this trend, revealing that 85 sovereign wealth funds and 57 central banks are collectively managing an impressive $21 trillion in assets.
The 2023 Invesco Global Sovereign Asset Management Study, released in July, has unveiled the central banks’ growing interest in gold as a reliable store of value. These institutions are actively recalibrating their portfolios in response to persistent concerns over rising inflation and real interest rates.
In 2022, central banks recorded a historic year for gold purchases, acquiring a net total of 1,136 tonnes. China and Turkey emerged as particularly aggressive buyers, accounting for 20% of the total volume. However, central banks in the Middle East and emerging markets also displayed noteworthy interest in bolstering their gold reserves to shield their portfolios from global inflationary trends.
According to the study, around two-thirds of central banks identified inflation as a key risk, prompting them to seek protection through various means. Increasing gold allocation emerged as the most prevalent strategy, with 69% of central banks countering global inflation by bolstering their gold holdings. The unanimous sentiment among central banks is that gold serves as a safe haven asset during uncertain economic times.
One of the primary reasons central banks favor gold over other investment options is the concern surrounding the precedent set by U.S. sanctions. The attractiveness of physical gold bullion, which is not reliant on exchange-traded products like futures, further enhances its appeal for central banks seeking stability and wealth preservation.
Despite the remarkable surge in Bitcoin’s value this year, central banks remain cautious about digital assets. However, the performance of Bitcoin cannot be ignored, with price gains exceeding 80% since the beginning of the year. This exceptional performance has been partly driven by the recent filing of applications for spot Bitcoin exchange-traded funds (ETFs) by major asset management firms.
The filing of ETF applications by WisdomTree, Invesco, and BlackRock reflects growing confidence in Bitcoin as a long-term investment. While central banks may be hesitant to fully embrace digital assets, the notable success of Bitcoin has piqued interest among investors and analysts alike.
The sustained interest in gold acquisitions reflects their commitment to mitigating risks associated with inflation and preserving wealth in uncertain economic climates. As central banks continue to prioritize stability, gold’s historical track record and liquidity position it as a favored asset for weathering economic uncertainties and safeguarding portfolios.