Gold prices are reaching record highs because of strong buying by central banks.
Central banks in countries aligned with China are diversifying their assets from the US dollar into gold.
Central banks are favoring gold as a politically neutral, safe asset, insulated from sanctions.
Gold prices are on a tear recently thanks to strong buying by central banks — a signal that the precious metal is increasingly seen as a geopolitical hedge.
Last week, a top International Monetary Fund official pointed to gold’s role in a potential fragmentation of the global economic and financial order.
“After years of shocks — including the COVID-19 pandemic and Russia’s invasion of Ukraine — countries are reevaluating their trading partners based on economic and national security concerns,” said Gita Gopinath, an IMF deputy managing director
In particular, some countries are rethinking their heavy reliance on the US dollar in their international transactions and foreign reserve holdings, she said.
Demand for gold has risen because it’s seen as a “politically neutral safe asset, which can be stored at home and be insulated from sanctions or seizure,” said Gopinath.
Central banks accounted for one-quarter of gold demand in 2022 and 2023, as the institutions bought over 1,000 tons of gold each year, according to the World Gold Council in a recent report.
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