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Bank of Poland: Gold Retains its Value Even in the Event of a Financial Crash

Published by Tavex Analysts in category Market News on 06.07.2023
Gold price (XAU-GBP)
1,883.05 GBP/oz
  
- GBP6.70
Silver price (XAG-GBP)
22.40 GBP/oz
  
- GBP0.26

In an unprecedented move, the National Bank of Poland procured nearly 15 metric tonnes of gold in April, marking the largest transaction of this nature within a span of four years. The head of the central bank, Mr. Adam Glapinski, explained this strategic decision by asserting the enduring value of gold as an asset, one that would maintain its worth even amidst the potential collapse of the global financial system.

Poland’s gold reserves rose by 14.8 tonnes last month to 243.5 tonnes, according to the central bank. This was the biggest increase in gold reserves since June 2019. The value of gold held by Poland has now risen to $15.5 billion.

Preparing for Adverse Conditions: Poland’s Vision

The total value of the central bank’s reserves rose to $178 billion in April. The head of the central bank, Adam Glapinski, said in 2021 that Poland plans to increase its gold reserves by 100 tonnes. “We are preparing for the most adverse conditions,” he said at the time.

“Why does the central bank hold gold? Because gold retains its value even if someone pulls the plug on the global financial system,” Glapinski told a local newspaper. “Of course we don’t expect that to happen. But as the saying goes: those who have been forewarned are always forearmed. And the central bank must always be prepared for the worst-case scenario. That is why gold is also very important in our reserve management.”

Colin Hamilton, managing director of BMO Capital Markets, told Kitco that this could mean further buying. “We expect the big central bank gold purchases to continue this year. This is a tailwind for the gold price,” Hamilton said.

Large central bank gold purchases have helped gold prices stay high this year. Gold also hit an intraday record in early May, reaching $2081.8 an ounce.

The World Gold Council (WGC) reported at the beginning of May that central banks bought 228 tonnes of gold in the first quarter of 2023, the most since 2000, when data collection began. Admittedly, the figure falls short of the last two quarters, when purchases were a record 458 and 378 tonnes respectively.

Singapore (69 tonnes), China (58 tonnes) and Turkey (30 tonnes) have bought the most gold this year. However, it is worth noting that for a large proportion of purchases it is not known exactly who made the purchases. While China’s official gold reserves amount to a little over 2,000 tonnes, various estimates put unofficial reserves as high as 10-20,000 tonnes.

Tavex’s Analysis: Poland as a Western Example

Last year saw the largest central bank purchases of gold since 1967, but buyers were mainly from the Middle East and Asia. Western countries have tended to be passive or sellers in the gold market. In this respect, Poland is setting an example for the West.

The rest of the world’s central banks seem to realise that there are difficult times ahead in geopolitics, economics and the financial system, and that historically it is strong gold reserves that have helped countries through them. The mathematically unsustainable debt-based monetary system is cracking in ways that Western leaders are unwilling to acknowledge – and that would be to acknowledge the failure of the money printing and super-rich money policies of recent decades. Accelerating inflation, falling bond prices and the recent banking crisis are shedding light on the weak foundations of the system.

With the bulk of gold purchases coming from the East, this probably means that, as the monetary system changes, the centre of gravity of world economic power will shift ever more rapidly eastwards, particularly towards China.

Western countries are used to high living standards and prosperity. But this is not necessarily something that is here to stay. To maintain it requires long-term sustainable economic policy decisions. The example of Argentina, which over a century has fallen from being one of the world’s 10 richest countries to a developing country, shows that irresponsible indebtedness, persistent budget and trade deficits and temporary solutions to problems (and thus their long-term amplification) push countries towards poverty.

Gold price (XAU-GBP)
1,883.05 GBP/oz
  
- GBP6.70
Silver price (XAG-GBP)
22.40 GBP/oz
  
- GBP0.26

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