Financial encyclopedia

As the Federal Reserve is about to enter the interest rate reduction cycle and the tension caused by the US election, the market risk aversion has risen sharply to push up the price of safe-haven assets and the price of gold has soared! The price of gold once reached $2,580 per ounce, a record high. Gold is not only popular with investors, but also has a large amount of gold reserves by central banks. The reasons behind this are as follows:

Dealing with geopolitical and economic instability

For example, the trade friction between the United States and China and the conflict between Russia and Ukraine have aggravated the international tension. The central bank chose to spread risks by increasing its holdings of gold to maintain the security of international reserves.

Hedge dollar risk

With the continuous high debt level and loose monetary policy in the United States, the confidence of the global market in the US dollar has weakened. The central bank hedges the risk of dollar depreciation by increasing its holdings of gold and reduces its dependence on the single currency reserve.

Anti-inflation and demand for value preservation

After the outbreak, the supply chain bottleneck caused by the economic restart and the rise of energy prices continued to rise. The central bank increased its holdings of gold to counter the risk of devaluation of the domestic currency due to inflation and ensure the stability of the value of its asset reserves.

Promote the process of dollarization

More and more countries seek to reduce their dependence on the US dollar. As an international asset, gold is not affected by a single national policy to increase its holdings of gold to replace some US dollar reserves, thus reducing the risks brought by external sanctions or market turmoil.

Maintain international credibility and financial stability

Increasing the holdings of gold can make the central bank have more responses when the financial market fluctuates, further consolidate the stability of the domestic monetary system and increase its ability to resist external shocks. Gold reserves are regarded as a symbol of the country's economic strength.

With the uncertainty of the global economy and the potential weakness of the US dollar, the central bank may continue to increase its holdings of gold. For individual investors, this also shows that the attractiveness of gold as a long-term stable asset is still strong.