Inflation was suppressed in 2020 and was not an issue. However, in August of that year, gold prices reached their highest price ever at $2,075.88. In 2022, with inflation continuing at full speed, gold exceeded $2,000 but could not stay there. This eruption occurred in March last year and was triggered by the Russian invasion of Ukraine. In fact, gold stands 2022 where it started on January 2. So can gold finally explode in 2023?
Gold prices ignore war and inflation
As you follow on Kriptokoin.com, gold prices largely ignored this in 2022, when the biggest inflation explosion in 40 years took place. It was also largely unaffected by the Russia-Ukraine war in the second half of the year.
There was both a great war and a great inflation. These are the two key ingredients that by all economic textbook standards the price of gold should rise. However, it didn’t. This leaves an important question as to what needs to be done to push the gold price well above the $2,000 mark in 2023 and maintain it.
Central banks’ gold purchases increase
Some central banks of the world have made a full comeback on gold in 25 years. In 1997, the Reserve Bank of Australia sold 167 tons of gold, while Argentina sold 125 tons of gold. In 1998, the Belgian central bank was among the sellers with 299 tons. But the disaster was the Bank of England, which dumped 401 tonnes on average USD/ounce between 1999 and 2002. The sale was so intense that the Europeans locked themselves in a deal to limit the draining of gold.
But 2022 saw a completely different picture. Central banks bought gold at the fastest rate since 1967. The World Gold Council in November estimated that central banks had purchased 673 tonnes since January. This is an estimate, however, because we do not know if there are any undisclosed gold purchases.
The main suspects in accumulating gold reserves without going public are China and Russia. China bought 32 tons in December, bringing the country’s total assets to 1,190 tons. However, it is now widely accepted that China’s purchase figure was close to 300 tons in December. Turkey, Uzbekistan and others were getting their ears plugged. Qatar doubled its reserves.
Certainly, the Italian central bank Banca Italia strongly believes in gold. Because he has 2,451 tons. Only the US and Germany have more Of course, if they have the actual size of their stash, then probably China does too. Banca Italia does not hide its passion for gold, with the following statement on its website:
Gold is an excellent means of protection against difficulties. Another good reason to have a large position in gold is that it protects against high inflation as gold tends to retain its value over time.
GFC changed its mind
After the Great Financial Crisis of 2007-2008, the sale of gold reserves stopped. In 2012, central banks returned to the gold market. This time, however, they were in the receiving position. They bought a total of 534.6 tons that year. Central banks of Brazil, Paraguay, Iraq and Venezuela were also among those who filled their gold bullion.
And in mid-2015, Austria decided that they were uncomfortable with the bulk of their gold being stored in foreign vaults, and arranged for some of the bullion to be repatriated. Thus, he followed in the footsteps of Germany and the Netherlands. Vienna owned only 17% of its 280 tons and 80% of the gold was held at the Bank of England. It plans to move most of it to Vienna and Switzerland over the next few years.
Meanwhile, in 2015, Jordan joined the ranks of central banks with the decision to buy more gold. Kazakhstan added a few more tons in March that year, exceeding 200 tons, more than double the level of its reserves in 2012.
2023 outlook for gold prices
Will rising interest rates keep gold as an asset under pressure? This is the traditional view. After the initial burst of prices in 2022 failed to do so, it is hesitant to look to further inflationary pressures supporting gold. Unless the Ukrainian war fully spreads to Europe, which seems highly unlikely given Russia’s current apparent military limitations, this conflict is unlikely to raise the level of global geopolitical crisis to any extent.
The main factor on gold is clearly central bank purchases. So in 2023 we can see the results come out more clearly. Central bankers don’t do things on a whim, so why are they buying gold so heavily? The big takeaway is that many central banks now recognize that gold is money.
Meanwhile, China appears to be on its way to internationalizing its markets, with huge gold holdings supporting the yuan as a new world currency. London-based Goldmoney’s Alasdair Macleod points to China’s plan to pay oil in yuan with Saudi Arabia as a sign of the dollar’s declining strength. In the meantime, more such deals are expected, bypassing the US dollar as a trading currency. Once this concept spreads to the private investor, gold prices could eventually go up.