Central banks buy gold, gold prices will break out

BRICS is working on a common currency in an attempt to ditch the US dollar and push back against America’s dominance. 

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According to a World Gold Council research, central banks accumulated gold at the quickest rate on record in the first two months of 2023. (WGC). Central banks together purchased a net 125 tonnes of the metal in January and February, the greatest amount for the year-to-date period since banks became net purchasers in 2010.

Singapore (51.4 tonnes), Turkey (45.5 tonnes), China (39.8 tonnes), Russia (31.1 tonnes), and India reported the highest purchases in the first two months. (2.8 tonnes). For the first time in over a year, the Central Bank of Russia provided an update on its gold holdings, implying that the 31.1 tonnes were likely collected over several months rather than in January and February.

If you look back at the list of net purchases, you'll note that three of them are BRICS members. (Brazil, Russia, India, China and South Africa). I mention this because, as I've been saying for a few weeks, we may be witnessing the formation of a multipolar world, with a U.S.-centric world on one side and a China-centric world on the other. On a buying parity basis, the BRICS countries' share of the global economy has overtaken that of the G7 nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) for the first time.

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Gold is significant in this multi-polarization. The BRICS need gold to maintain their currencies and wean themselves off the US dollar, which has been the world's reserve currency for over a century. Global commerce is increasingly being performed in Chinese yuan, and there are rumours that the BRICS—which may ultimately include other significant growing economies such as Saudi Arabia, Iran, and others—are establishing their own payment medium.

Gold price may rise further

If this is the case, it seems apparent to me that investors should increase their exposure to gold and gold miners. Gold is an exhaustible resource. Producing more of it is costly and time-consuming. At the same time, as they aim to diversify away from the dollar, the BRICS nations will continue to be net purchasers.

In addition, after 10 months of outflows, net inflows into gold-backed ETFs turned positive in March, as the metal's price flirted with a new record high. In March, investors added approximately one million ounces to all known physical gold ETFs, the largest monthly rise since March 2022, when investors added 1.4 million ounces. According to Bloomberg, overall gold holdings were at 93.2 million ounces as of March 31.

Mr. Colin, an FX expert, said central banks' gold purchases would push gold prices beyond $2,000. It may not climb continually, but it will fluctuate.