Inflation leads Asian central banks to build up gold reserves

Kuwaiti gold maker and managing director of Dana solitaire company for formulation and trading of gold and jewellery works at his shop in Kuwait City, on August 23, 2023. Gold prices have been fluctuating in Kuwait for the past few weeks. (Photo by YASSER AL-ZAYYAT / AFP)

SINGAPORE: Gold purchases by the Monetary Authority of Singapore (MAS) and other central banks in Asia have stepped up over recent years amid inflationary pressures and geopolitical uncertainty.

China, Thailand and Singapore led the way in bullion buying between 2013 and 2022, noted World Gold Council data collated by City Index. Gold is generally regarded as a good hedge against inflation and a safe-haven asset during times of uncertainty.

City Index’s list showed that Singapore recorded the third-largest increase in gold reserves among Asian economies over the past decade, with holdings increasing 21% from 127.4 tonnes at the end of 2013 to 153.74 tonnes by late 2022.

Singapore’s purchases have accelerated this year, with the World Gold Council noting that the country was the world’s leading sovereign gold buyer in the first quarter – the MAS accumulated 68.7 tonnes in the three months to March – putting it ahead of even China. This trend continued into the second quarter, with purchases lifting Singapore’s gold reserves to 225.36 tonnes in the quarter.

But it is not just Singapore that is accumulating the precious metal.

China was the biggest buyer over the past decade in terms of percentage and actual tonnage, as it built up its reserves by a whopping 91% – from 1,054.09 tonnes at the end of 2013 to 2010.51 tonnes by the end of 2022.

Thailand recorded the second-largest increase, lifting its holdings over the decade from 152.41 tonnes to 244.16 tonnes by the end of 2022, a rise of 60%.

That increase was much higher than that of Indonesia, whose gold reserves increased by just 0.64% over the same period, despite the two countries showing similarities on several metrics, including trade.

Malaysia’s reserves increased by 7% to 38.88 tonnes during the decade.

City Index noted that China’s increase in gold imports was also driven by an effort to reduce its reliance on the US dollar and to diversify the People’s Bank of China’s foreign reserve holdings.

“China’s significant increase in gold holdings in the last decade is likely an attempt to diversify its foreign reserves away from the US dollar, a move that is consistent with its broader strategic goals,” said Matt Weller, head of market research at City Index.

“This trend is part of a larger global shift in which countries are increasingly looking to reduce their reliance on the US dollar, and we expect this trend to continue as geopolitical tensions persist.”

But not every Asian economy is rushing into gold.

Taiwan and the Philippines are among those not buying more bullion, while South Korea increased its reserves by a marginal 0.01% over the decade. Hong Kong chose not to add to its reserves at all.

The Philippines was the only economy in the City Index ranking that chose to reduce its gold reserves.

While a combination of uncertain geopolitics and sticky inflation continues to see many countries accumulating gold, plenty of savvy individuals are also jumping onto the bullion-buying bandwagon, City Index said.

“As central banks continue to use gold as an inflation hedge, it’s not surprising to see individual investors following suit in the form of coins or jewellery, especially in countries such as India and China, where gold has long been considered a traditional store of value,” Weller noted.

“The surge in gold investment demand signals a growing concern among investors regarding the inflationary pressures in the market, prompting individuals to seek a reliable measure of protection against purchasing power risk.”

Global central bank gold reserves top 35,715 tonnes, roughly one-fifth of all the gold ever mined.

While Asian economies such as China and Singapore have been actively accumulating gold, Western developed nations hold the biggest reserves.

The US topped the list with total reserves of 8,133.46 tonnes as at the end of 2022. Other countries with reserves larger than China include Germany, Italy, France and Russia.

Besides central bank purchases, global demand for gold is also driven by jewellery purchases, industrial use and retail investment. — The Straits Times/ANN