The World Gold Council (WGC) has published its annual survey. The WGC states that central banks around the world continue to view gold as an important reserve asset. He also expects them to continue buying gold through 2022. In the light of these developments, analysts share their gold expectations.
Why do central banks buy gold?
WGC said on Wednesday that 57 central banks responded to its annual Central Bank Gold Reserves (CBGR) survey in its published results. 25% of the respondents said they expect to increase their precious metal reserves in the next 12 months. In the 2021 survey, 21% of respondents planned to increase their gold holdings. Analysts include the following points in the report:
Expected changes in the international monetary system and concerns about increasing economic risks in reserve money economies are also important factors. However, the planned acquisitions are mainly driven by growing concern about a possible global financial crisis.
WGC said this year’s survey highlights a new divide between central banks in advanced economies and central banks in emerging markets and emerging economies (EMDEs). The report states that 25% of central banks willing to buy are from EMDE countries. In total, 80% of EMDE central banks expect their global gold reserves to increase next year. In the report, WGC evaluates:
The results show that these banks tend to view gold as a more important component of their overall reserve management strategy, particularly at a time when there is a greater need for risk-reducing assets.
So why do central banks hold gold?
The biggest reason for central banks’ answers is their historical location. Last year, most central banks said they held gold because of its performance in times of crisis. This reasoning has dropped to second place this year.
The first five reasons can be summarized as follows: Central banks see gold as a long-term value/inflation hedge. In addition, there is no risk of default. It is also an effective portfolio diversifier. Analysts make the following assessment:
There is a more challenging economic and geopolitical environment. Therefore, central bank gold demand is likely to remain strong. Because the safe haven and inflation protection properties of gold strengthen the belief of central banks.
“The long-term outlook for gold needs to revolve around this”
A market analyst has suggested that the gold market has a three-week hold pattern. He says he’s imprisoned. It also states that it will continue to consolidate until next week’s Federal Reserve monetary policy meeting.
StoneX’s Head of Market Analysis for EMEA and Asia, Rhona O’Connell, has published her latest weekly analysis. The analyst says gold investors should look for possible unexpected reactions after next week’s announcement. In addition, he states that they should focus on the bigger picture.
Meanwhile, gold prices continue to trade at $1,850. Despite the Fed’s aggressive monetary policy stance, markets forecast interest rates to reach 3.50% by the end of the year. However, inflation pressures will remain high. In this context, Rhona O’Connell says:
Currently, US two-year rates are 2.7%, headline inflation is 8.2%. However, there are still some conclusions to be drawn from the annual calculations. Headlines about rate hikes are likely to cause immediate reactions in the markets. However, the long-term outlook for the precious metal should revolve around persistent negative real rates.
“Basic financial parameters continue to support gold”
Markets will continue to price significant rate hikes throughout the summer. However, O’Connell notes that there is still much uncertainty about how the Fed’s plan to shrink its balance sheet will fit into current monetary policies. As we reported on Kriptokoin.com , this month the Fed began reducing its balance by $47.5 billion. It will begin shrinking its balance sheet by $95 billion by September. In this context, the analyst makes the following assessment:
Tightening gives bond yields a natural vitality. It’s also certainly possible that this will allow the Fed to be less aggressive about raising interest rates than the bond markets are discounting. So, key financial parameters remain supportive for the yellow metal. But the professional markets are still not committing to any size.
“We were relieved to see that the flow of gold ETFs was the strongest in a month”
City Index senior market analyst Matt Simpson, Share your gold predictions. The analyst draws attention to the following levels:
Gold provided support around $1,848 yesterday. It also looks pretty comfortable around $1,850 today, having seen a series of higher bottoms.
As it is known, monthly US consumer price index (CPI) data will be announced on Friday. Economists expect annual inflation to be 8.3%, according to a Reuters poll. Matt Simpson says:
We’ll probably have to wait until tomorrow’s CPI report before we see sustained movement in either direction. But yesterday we were relieved to see gold ETF flows being the strongest in a month.
“Uncertainty currently keeps gold price in a range”
SPDR Gold Trust is the world’s largest gold-backed ETF. Its shares rose 0.2% to 1,065.39 tons on Wednesday, from 1,063.06 tons on Tuesday. Here’s the gold forecast from AirGuide corporate consulting director Michael Langford:
Uncertainty is currently keeping the gold price in a range. But the trend has been clearly bearish since April. In addition, the most important problem facing gold is that it does not provide returns in a rising interest rate environment.
