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(Kitco News) - Central bank gold demand has completely transformed the gold market after a record 1,136 tonnes were added to global reserves last year. And while 2023 isn't expected to be another record year, official sector demand will remain healthy.
According to the latest report from the World Gold Council, Singapore's central bank bought gold for the second straight month, increasing its official reserves by 6.8 tonnes in February. The WGC noted that Singapore has seen a significant increase in its gold reserves so far this year.
"Its gold reserves totaled 205 tonnes at the end of the month, over 51 tonnes higher than at the end of 2022," said Krishan Gopaul, senior European, Middle East, and Asian markets analyst at the World Gold Council in a comment on Twitter Friday.
Analysts note that central banks continue to buy gold and diversify away from the U.S. dollar.
In an interview with Kitco News, Robert Minter, director of ETF Investment Strategy at abrdn, said central bank demand is a significant reason why investors need to be overweight gold. He added that gold would be the biggest winner in a multipolar currency world.
"Central banks are not going to stop buying gold anytime soon," he said. "The dollar won't lose its reserve currency status anytime soon, but central banks will continue to diversify away from the U.S. dollar."
The de-dollarization trend has picked up significant momentum in the past year as Western nations have tried to punish Russia for invading Ukraine.
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Russia was kicked out of Society for Worldwide Interbank Financial Telecommunications, or SWIFT system, and harsh economic sanctions have crippled its economy. Some political analysts have described the West's actions as a weaponization of the U.S. dollar and a new style of "aircraft carrier diplomacy" to dictate foreign policy objectives.
At the same time, other analysts have said that the diversification trend away from the U.S. dollar and into gold has some more practical reasons. Paul Wong, market strategist at Sprott, said that the U.S. dollar's unprecedented rise to a 21-year high created massive inflation problems for emerging market currencies.
He added that having as much flexibility in your reserve assets is essential in a multipolar world, and only gold can fill that role.
"Central banks are buying a lot of gold and because there's a lot of inflation," he said. "If you want to protect the purchasing power of your reserve currencies, gold is the one asset that can be used as an outside currency. It is fungible whether your central banking system is western based or, led by China."
