Central banks buying gold at an unprecedented rate

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Central banks are buying gold at the fastest pace on record in 2023, with a net of 125 tonnes purchased collectively in the first two months of the year, according to a report by the World Gold Council.

The countries reporting the largest purchases in the first two months were Singapore (51.4 tonnes), Turkey (45.5 tonnes), China (39.8 tonnes), Russia (31.1 tonnes) and India (2.8 tonnes).

The Central Bank of Russia published an update on its gold reserves for the first time in about a year, so the 31.1 tonnes were likely accumulated over the course of several months instead of in January and February. BRICS countries becoming key buyers as they seek to diversify away from the US dollar, which has been the global reserve currency for nearly a century.

The report suggests gold could play an important role if a multipolar world emerges, with a China-centric world possibly emerging in opposition to the current US-centric order.

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Investors have also begun increasing their exposure to gold-backed exchange-traded funds after 10 straight months of outflows, as the price of gold flirts with a record high. Gold is catching a strong bid as weak economic news, ongoing inflation, rising rates, a shaky banking sector and geopolitical tension have led to recession risk signals. US manufacturing activity sank to its third-lowest reading in 15 years, while analysts predict that the Federal Reserve is reaching the end of its rate-hiking cycle, which has historically preceded a recession.

The report concludes that buying gold and gold stocks, particularly in emerging economies, is wise at this time, with a 10% weighting in physical gold and high-quality gold mining stocks recommended.

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