Gold to Replace the USD??

Gold is on fire, it has touched record high this week, just a few days ago Gold has crossed the Rs. 73000 mark (i.e around $875) for 10 grams of pure gold.

At the Beginning of this year, the price was hovering around Rs. 65000 (almost $780). So India has seen a sharp Increase in the Gold Prices.

But what about the international markets? Same story, globally gold prices are up by over 16%.

What's Driving this Rally??

The World's Central Banks, they are buying gold in large quantities, and they've been at it for a while.

It started with China, almost 2 years ago. China's Central Bank or The People's Bank of China (PBC). It has embarked on a gold buying spree, and how much gold have they bought.

225 Metric Tonnes (MT). In 2023 alone Beijing bought more gold than any other Central Bank last year, and Beijing is not done yet.

From January to April China added to more gold to its Reserve in fact since November 2022, they've been piling it up. As of Today they have more than 2,200 tons of gold.

You may be wondering why do they need so much of it, right? What is driving this buying spree?

Fear, perhaps. Recent geopolitical tensions, specifically what happened with Russia.

When Russia invaded Ukraine, the West cracked down on Moscow's reserves. They went after Russia's Financial assets, these assets were being held by the Western institutions, we're talking about some $300Bn Russian wealth, controlled by the West, this was part of Russia's foreign exchange reserves. The West Froze all these accounts so Moscow can no longer access its own money. In fact there's also talk of giving this money to Ukraine, it's been proposed many a times that give this blocked Russian money to Ukraine. So Far Western Powers have resisted and Russia does not have access to its own money.

And now Beijing Sees this as a cautionary thing. So, it's login faith in the Western financial institutions and buying gold as an insurance, a potential hedge against USD.

China still holds a large reserve of the USD, as of last month they had over $3tn.

So, Beijing has not completely given up on the green bag, but it's on the path of diversifying.

It's not the only one doing so. Diversifying reserves and stocking up on gold, other central banks are doing the same.

From June last year to January this year at least 5 other Central Banks (Turkey, China, India, Kazakhstan and Jordan) bought gold for eight consecutive months.

In this list, India stands out, it's gold purchases have surged touching almost a 2-year high last month, in recent months India has bought more than 10 tons of gold.

So how much gold does the RBI have? More than 800 tonnes of gold with RBI, as of January 2024. This is believed to be worth more than $50Bn.

Now India's overall reserves in March stood at around $550Bn.

Given this number $550Bn, the value of Gold reserves may not be material enough. But it's rise is. There is a clear shift, central banks around the world want to cut risks they want diversified reserves, where they don't have to depend on a single currency or instruments.

So If you're looking to buy gold to invest in it, what should you do? Is it a good time to buy? Well, if you're price sensitive you may want to wait the gold market is expected to remain volatile, prices have already touched record highs and experts predict more growth through the year.

Banks like JP Morgan predict a peak next year in the second half of 2025.

Conclusion

So, if you're planning a major gold purchase, if there's a wedding in your family, or if you're just looking to park some cash, chances are you'll have to shell out more money.