Throughout history, governments and their central banks have protected countries’ reserves by buying gold. Even so, in the face of economic uncertainty caused by the health crisis and runaway inflation, they have increased purchases in recent years.

Data published by the International Monetary Fund (IMF) confirms that central banks’ demand for gold recovered in 2021, with an 82% increase over 2020. Net purchases of gold by central banks amounted to 463 tonnes in 2021. This represents a significant pick-up in demand from this sector after a decade low of 255 tonnes in 2020, and the twelfth consecutive year of net purchases, during which central banks have bought a net total of 5,692 tonnes of gold.

Although central bank demand is often driven by policy rather than market demands, and therefore may be less predictable than other sources of gold demand, an upward trend is confirmed. A phenomenon that is nothing new if we are talking about emerging countries or countries not aligned with Western geopolitical interests, but to which a whole series of central bank buyers from developed markets were added in 2021.

For example, the Monetary Authority of Singapore (MAS) increased its gold holdings by just over 26 tonnes, a 20% increase, the first increase in at least 21 years. “The change in gold holdings is a result of MAS’s ongoing and continuous efforts to ensure that the Foreign Official Reserves portfolio remains highly diversified and resilient across economic and market conditions,” a MAS spokesman said.

Russia and China boost gold purchases

Economic sanctions imposed on Russia have prompted the Russian central bank to announce it will suspend gold purchases from banks to meet rising household demand for the precious metal and weather the storm in Russian markets. The abolition of value-added tax on these transactions, coupled with the rouble’s plunge to record lows, is spurring gold purchases by a population that wants to protect its savings.

However, both Russia and China have been increasing their gold reserves significantly for years. China almost certainly owns far more gold than anyone else, including the United States. We have seen many examples in recent decades of the latter country exploiting and abusing the dollar’s status as the world’s reserve currency to punish other countries contrary to its economic interests, thus accelerating the process of de-dollarisation and the creation of alternative gold-based monetary systems.

A process that is accelerating thanks to the conflict in Ukraine, and to the collaboration between Russia and China, not only to counteract the sanctions of the United States and the European Union, but also to ensure that the days of the hegemony of the Western monetary system are numbered in a multipolar world in which the Asian continent has more and more weight in the global economic balance.

In short, the wide range of purchases in 2021 has shown that there continues to be a significant demand for gold as a safe-haven asset, and the upside performance of this metal during periods of crisis has become the main reason for central banks to hold gold. A financial protection resource that is not exclusive to central banks, but is also available to everyone.

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