The amount of gold held in reserve by central banks has reached a new record high of 36,000 tons for the first time since 1990. According to the World Gold Council (WGC), the cause behind this sudden increase to a 31-year maximum was the fact that central banks purchased over 4,500 tons of gold in the last decade.
A WGC report published by Nikkei Asia explains that central banks' growing interest in gold is due to the falling value of the US dollar. The document stresses that the Fed's quantitative easing policy led to a sharp increase in USD supply — and that, in turn, caused the dollar's value in gold to drop throughout the past ten years.
The WGC further states that the central banks of developing economies are trying to reduce their dependence on the USD and keep adding to their gold reserves to limit the impact of currency devaluation on their economies.
Before 2009, many central banks preferred to build up the reserves of the assets denominated in USD, such as Treasurys, using the revenues from gold sales. But after the 2008 financial crisis, which led to an outflow of capital from the US Treasury bonds, the trust in the USD fell.
As shown by the WGC data, gold is once again becoming central banks' instrument of choice when it comes to protecting assets. The examples of Afghanistan and earlier Venezuela, whose gold accounts were frozen by the US and UK banks, show that it's far safer for central banks to store their own gold.
At some point in the future, the state might once again prohibit individuals from owning gold and silver and force them to sell it cheap to the central bank — or face criminal prosecution. Great changes are coming — but for now, it's still a wise strategy to store some of your savings in gold.
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