The latest survey of central banks by the World Gold Council shows that national institutions continue to be positive about gold, with no real change between 2020 and 2021 in the percentage of central banks believing national gold reserves will grow globally.
As seen in the graphic below, provided by the WGC, central banks strongly believe that gold is an effective alternative asset, that it performs well in a crisis, and historically is proven to be a solid long-term asset.
The new poll shows that 21% of central banks surveyed plan to increase their gold reserves in the next 12 months; a figure which could grow depending on the manner of Covid-19 recovery (if there even is an end to it). While this might seem akin to the improved central bank demand in 2018 and 2019, the reality is that turbulent leadership and the potential for conflict was the issue then – now it is inflation and its impact upon the cost of living.
Uncertainty impacts most financial activities though, and gold is not exempt from this. Consumer demand has increased because of uncertainty with economic performance, and in turn the impact upon company shares and stocks on the exchange. Inflation is following as recovery slowly seeps through which is benefiting gold more, but recovery could halt gold's bullish behaviour, as could a change in interest rates in the US, UK or EU.
The counterpoint though is that central banks have, until the last few months, halted gold buying because of the pandemic – Russia and China in particular. Gold has been performing without their support, and there's a reasonable chance that there will be a perfect synchronisation where central banks and consumers buy gold at the same time; maybe just before rate rises occur and consumer demand eases off. Were this to happen, gold would shoot up in price swiftly, and likely hit the $2,300 per ounce mark that many market analysts predicted coming into 2021.
