“Intervention in the forex market to support the rupee during the year caused a decline in FX reserves of US $70 billion, which may have impacted the bank’s gold buying,” World Gold Council said.
Spot gold on Thursday was trading around $1,882/oz. Goldman Sachs expects gold prices to trend around $1,950/oz in 2023, with China reopening and increased central bank purchasing lending a support to the bullion’s prices.
Why are we buying so much gold?
“Last year we saw the highest level of annual gold demand in over a decade, driven in part by colossal central bank demand for the safe haven asset,” Louise Street, a senior market analyst from the World Gold Council, said.
With inflation remaining uncomfortably high across much of the global economies, we saw good-old gold making a comeback. Concerns over a slowdown refuse to abate and will likely keep demand for gold on a firm footing this year, analysts have said.
And one survey shows that there are two reasons why central banks are bullish on the bullion- its performance during times of crisis and its role as a long-term store of value.
More importantly, it is the emerging markets like China and Turkey that have accounted for the bulk of last year’s reported demand, data shows.
As per the 2022 Central Bank Gold Reserves (CBGR) survey, central banks’ plans to pick up gold were chiefly motivated by increasing concern about a possible global financial crisis, coupled with anticipated changes in the international monetary system and concerns over rising economic risks in reserve currency economies.
74% of central banks, in 2022, reported higher total reserve levels than five years ago, an increase from 68% in 2021 and 53% in 2020.
“Gold’s diverse demand drivers played a balancing act as rising interest rates prompted some tactical ETF (exchange-traded fund) outflows, while elevated inflation spurred on gold bar and coin investment. In the end, overall investment demand was up 10 per cent on the previous year,” Street said.
Will this buying continue?
With lingering recession worries along with ongoing geopolitical uncertainty, interest in gold is likely to sustain in 2023, says WGC.
“Central bank buying is unlikely to match 2022 levels. Lower total reserves may constrain the capacity to add to existing allocations,” it said.
Bottomline, the organisation says, 2023 is likely to be a good year for gold with more upside potential than downside risk given a growing risk of recession in the US and Europe.