Rising interest rates and instability in the banking sector are pushing gold prices higher.
Demand for the precious metal among central banks saw significant demand in the first quarter, according to the World Gold Council (WGC), reported NBC 5 DFW.
The price of gold surpassed $2,000 per ounce this week for the first time in over a year and is currently trading at around $2,024 per ounce, just a few percentage points shy of its all-time high of $2,069.40, set in 2020, according to Barron’s.
In the first quarter, central banks added 228 tons of gold to their reserves, the highest clip since the WGC started tracking central bank purchases in 2000, according to NBC.
“Top of the tree for gold in terms of why official sector institutions hold it is always things like its role as a diversification asset, its long term store of value, but increasingly over the last two years, we’ve seen how the importance that they placed on its performance during times of crisis,” Louise Street, senior market analyst at the WGC, told CNBC.
Among the largest buyers of gold were the People’s Bank of China and the Monetary Authority of Singapore, who added 58 tons and 69 tons to their reserves, respectively, according to NBC.
Street said the WGC noticed increased gold purchases by central banks after Silicon Valley Bank failed in March.
In Europe, gold demand is softening, particularly in Germany, which saw a 73% decline, creating a mixed outlook, Street said.
“Within the environment of high and rising gold prices, the mini banking crisis that we saw in March, continued high inflation and concerns around global economic recovery, that had a different impact on various different sectors of demand and different geographies,” Street said, per CNBC.
“And that’s all combined to kind of create this mixed picture, and it’s something we talk about quite a lot in relation to gold is just that sort of diversity of its sources of demand does mean they tend to react in different ways for different things, and that’s what helps obviously to make it such a good strategic diversification asset.”
Juan Carlos Artigas, head of research for the WGC, said the investment proposition on gold makes sense given the current financial landscape.
“As the Fed continues to tighten the screws, it is creating pressures on other parts of the financial system, as we have started to see. This could potentially unravel relatively quickly, so now is the time when you want to make sure you include some hedges in your portfolio,” he said, according to Kitco.
“There is a clear rationale for holding some gold now.”
The largest Gold ETF, SPDR Gold Trust (NYSEARCA: GLD), is up 10% year-to-date. The VanEck Vectors Gold Miners ETF (NYSEARCA: GDX), which gives investors exposure to gold mining companies, is up 19% year-to-date.