Asia’s central banks snap up gold in ‘new normal’ to reduce risk from US dollar
- Gold prices have neared historic highs, fuelled by expectations of interest rate cuts from the US Federal Reserve next year after a cycle of hikes
- Fears about their assets being vulnerable, following the US seizure of Russia’s foreign exchange reserves last year, have triggered a buying wave by central banks
Gold’s lustre has endured timelessly for Asian buyers, and its central banks too are now following suit to snap up the commodity amid de-dollarisation – a move to reduce exposure risk to the US dollar.
Fears about their assets being vulnerable, following the US seizure of Russia’s foreign exchange reserves of US$650 billion in February last year, have triggered a buying wave by central banks, said a Sprott Asset Management report this month.
The report said it signalled a “strong desire to diversify away from the US dollar and US dollar assets”.
That in turn has provided a floor to gold prices, powering prices to near-historic highs of above US$2,000 per troy ounce, fuelled by expectations of interest rate cuts by the US Federal Reserve next year after a cycle of hikes over the past year and a half.
“The sanctions applied by the US administration to several sovereign entities – what some refer to as the weaponisation of the dollar – have persuaded vulnerable governments to seek reserve assets not directly at risk from exclusions,” said Ross Norman, CEO of London-based precious metals website Metals Daily.