With the coronavirus pandemic plunging the global economy into uncertainty, central banks have curbed the buying spree they were on between 2018 and 2019. However, buying gold by central banks has not come to a screeching halt it has not been a screeching halt. Drastic reductions have been observed except for a few banks who have been buying up gold. One central bank that has bought up more gold than what anyone would have expected is Uzbekistan.
The net global decline in the purchase of gold declined by 12.3 tons but according to data from the World Gold Council, February had the highest number of gold buyers. Whilst most central banks cut down on spending, the Uzbekistan Central Bank ramped up its gold exports to generate cash in order to deal with the COVID-19 fallout. In August, the combined global purchases came to 19.7 tons. Uzbekistan added 5 more tones of gold to its reserves. Other countries that bought more gold include:
- India which bought 4 tons
- Turkey which bought 3.9 tons
- UAE which bought 2.4 tons
- Qatar which bought 1.6 tons
- Mongolia which bought 1.3 tons
- Kazakhstan which bought 1.3 tons
- Singapore which bought 0.2 tons
The driving factors continue to be geopolitical tensions and of course the economic uncertainty following the Covid-19 pandemic. More countries are moving towards diversification of their central bank reserves as efforts to de-dollarize gain momentum. The biggest countries that have been making moves towards this are China and Russia. Earlier in the year Russia announced that it would stop buying gold in April. China on the other hand has not reported any new purchases in the last 11 months however; it is not uncommon for the Chinese government to be quite about its gold purchases and then to suddenly announce a big increase. However, The Chinese Government has made some hints about shedding its US Treasuries and people are expecting Chia to replace some of its US debt with gold.
How has this affected the ordinary man on the street?
This has meant that this would be a good time to invest in gold. Gold has always been a safe haven investment so people would buy more of it to protect their wealth in times of economic crisis. When central banks and more ordinary people buy gold bullion, the demand rises and when demand goes up the price goes up. On the flip side, it would be a good time to sell gold bullion to or make up for shortages that may arise.
The price movements of gold are affected by three factors:
- Inflation as well as deflation
- Greed as well as fear
- Supply and demand
During these past couple of months, speculations about where the price of gold was likely to go as the market encountered these forces, almost taking hold of markets at the same time. If you are going to base your reason for buying or selling gold based on these polarities, it’s possible to be oblivious to some other factor that is controlling the price movements. For instance, you could assume that a strong rally in the price of gold is being pushed by fear or greed and assume that the rally will be spurred on emotions or sentiment. But, the real trigger might have nothing to do with fear or greed, but inflation that might be driving the stock market down. So, is this the best time to buy gold? Gold could go up or down depending on a plethora of reasons. There are too many variables that play a part in the pricing of gold as a commodity. If you have money and you want to protect your money then buy. If you need some cash injection and you want to sell gold bullion then by all means, sell. After all, the idea of investing in gold or anything for that matter is built around the fact that you can liquidate your assets and get that much needed cash when you need to.
