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Central banks will continue to buy gold in 2022 - World Gold Council Survey

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(Kitco News) - Central Banks around the world continue to see gold as an important reserve asset and are expected to continue to buy gold through 2022, according to an annual survey from the World Gold Council.

Wednesday, the WGC said that 57 central banks responded to its annual Central Bank Gold Reserves (CBGR) survey in its published results. Among the respondents, 25% said they expect to increase their gold reserves in the next 12 months. In the 2021 survey, 21% of respondents planned to increase their gold holdings.

"The planned purchases are chiefly motivated by increasing concern about a possible global financial crisis, although anticipated changes in the international monetary system and concerns over rising economic risks in reserve currency economies are also major factors," the analysts said in the report.

The WGC said that this year's survey highlighted a new divide between central banks in developed economies and those in emerging markets and developing economies (EMDE). The report said that the 25% of central banks looking to buy are all from EMDE nations. In total, 80% of EMDE central banks expect global gold reserves to increase in the next year.

"More EMDE respondents regard 'shifts in global economic power' as a relevant factor in their reserve management decisions, which could indicate growing concerns over the threat of a decoupling between major economies amid ongoing tensions," the WGC said in the report. "EMDE central banks generally face greater challenges in maintaining orderly capital flows and currency stability. The results may indicate that these banks tend to view gold as a more important component of their overall reserve management strategy, especially at a time when there is a greater need for risk-mitigating assets."

The survey also highlighted the growing expectation that the U.S. dollar will continue to lose its dominance as a reserve currency. Central banks also see the euro losing prominence within the global currency market.

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"Over the next five years, respondents anticipate a growing role for both gold and the Chinese renminbi, with 46% of respondents expecting gold to increase as a proportion of reserves and 82% of respondents expecting the Chinese renminbi to do the same," the analysts said. "Differences in expectations are also discernible between advanced and EMDE central bank respondents. EMDE respondents are notably more optimistic on the role of gold but less so on the role of the U.S. dollar."

As for why central banks hold gold, the top reason central banks give is its historical positioning. Last year most central held gold because of its performance during times of crisis, which fell to second play this year.

Rounding up the top five reasons: central banks see gold as a long-term store of value/inflation hedge; there is no default risk and it is an effective portfolio diversifier.

"In the face of a more challenging economic and geopolitical environment, central bank gold demand is likely to remain robust, with gold's safe-haven and inflation-hedging qualities serving to foster stronger conviction among central banks towards gold," the analysts said.

The survey results come after the WGC reported that central banks added 84 tonnes of gold to their official holdings during the first quarter, down 29% from the first quarter of 2021.

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