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- UBS predicts that central banks worldwide are expected to accumulate $48.74 billion worth of gold this year, driven by persistent inflation and geopolitical concerns, along with a decline in reliance on the US dollar.
- Countries globally are becoming reluctant to expand their US dollar reserves due to the perceived weaponization of the currency, as exemplified by the freezing of Russian foreign exchange reserves following the Ukraine conflict.
Predicted Surge in Gold Demand: Central Banks Retreating from US Dollar
Swiss banking giant, UBS, forecasts a substantial increase in gold demand from central banks across the globe this year. This trend is expected as nations are progressively distancing themselves from the US dollar. UBS, in a recent report, anticipates central banks to amass approximately 700 metric tons of gold, valued at nearly $48.74 billion within this year.
According to the financial behemoth, this gold stockpiling by central banks is projected to persist in the forthcoming months, propelled by ongoing inflation and geopolitical tensions.
Record Gold Demand Amid Rising Geopolitical Risks and Inflation
The past year signified the 13th successive year of net gold purchases by global central banks, reaching the highest annual demand level on record since 1950. Purchases of gold by central banks more than doubled from 450 metric tons in 2021 to 1,078 metric tons in 2022. Based on 1Q23 data from the World Gold Council, it’s anticipated that central banks are poised to procure approximately 700 metric tons of gold this year. This prediction far exceeds the average since 2010, which falls below 500 metric tons.
The trend of central bank buying is expected to persist in the face of heightened geopolitical risks and persistent inflation, as per UBS.
Another critical factor influencing this trend is the worldwide reluctance to increase US dollar reserves due to its perceived weaponization. This sentiment has gained momentum after the freezing of Russian foreign exchange reserves in the aftermath of the conflict in Ukraine.
In 2022, Russia’s Finance Minister reported that the US and its allies froze about $300 billion worth of Russia’s gold and foreign exchange reserves as part of sanctions imposed due to the Ukraine military conflict. UBS suggests that the decision by the US to freeze Russian foreign exchange reserves could have a long-lasting impact on the behavior of central banks, making them more cautious in their reliance on the US dollar.