Since the beginning, gold continues to be the choice of central banks around the world as an asset to be used as a deposit.
This phenomenon raises questions; why is gold the main choice for investment and national reserves?
Here are some of the main reasons driving this trend.
Value Stability During the Crisis
An economic crisis can happen at any time and many have already hit the world.
While currency values continue to rise and fall without warning on a daily basis, gold remains one of the safest assets amid global uncertainty.
In situations such as geopolitical crises, pandemics, or market instability, gold not only maintains its value but often increases.
This makes gold an ideal 'safe haven' when fiat currencies and other financial markets face a downturn.
Therefore, central banks, as in the case of the Russian crisis and various global conflicts, make gold a stable value reserve to be used as a reserve.
Reserve Diversification
Gold is used as a tool to diversify the central bank's asset portfolio due to its price not following the same pattern as currencies.
In uncertain situations, gold provides balance in reserves, protecting the value of national assets from currency fluctuations.
The central bank's reliance on the US dollar or other single currency can carry significant risks when that currency experiences inflation.
Countries such as China, India, and Turkey are now increasingly buying gold to reduce their dependence on the US dollar and the euro.
Therefore, diversifying reserves with gold is a wise move to strengthen asset value.
Gold Does Not Risk Bankruptcy
Compared to currencies or bonds, gold has no default risk where the percentage is too low for gold to become worthless.
This makes it a highly trusted asset by central banks, especially during times of financial instability.
In times of crisis, gold can be easily sold or exchanged, providing immediate liquidity to countries to meet urgent economic needs.
Gold Purchase Record
2022 recorded gold purchases by the central bank of 1,082 tonnes, the highest amount ever recorded.
This marks a significant change in global economic strategy, where more countries are choosing gold as a long-term economic protection measure.
Countries such as Russia, China, and India became among the biggest buyers of gold, reducing their holdings of US bonds and increasing their gold reserves.
Gold is not only a symbol of wealth, but also an economic protector in the midst of an increasingly uncertain world situation.
