Back in January, MAS increased Singapore’s gold reserves by 30%, another 6.8 tonnes of gold, seeing a significant increase in our overall reserves to 205 tonnes. But why are they doing this? What is the reason?
Central banks are continuing to buy gold, instead of holding USD. Belief is that, now, we are a multi-currency world, so gold is a safer asset to hold than American Dollars. Although USD won’t lose its currency reserve status anytime soon, central banks want to diversify away from the dollar.
The trend of diversifying away from the US Dollar gained momentum when Western nations began putting sanctions on Russia because of the war in Ukraine; Russia was kicked out of the SWIFT system and many other sanctions caused Russia’s economy to plummet.
Not only that, the US Dollar’s recent rise has caused massive inflation problems worldwide, especially for emerging markets. This has obviously worried banks, causing a shift to gold; gold is a good hedge against inflation, and is separate from currency, so does not suffer from exchange rate risks.
During times of political and economic uncertainty, gold is a safe reserve. Gold is able to retain value much better than other forms of currency, because it is limited and cannot be diluted. So to me, it is clear that Singapore is increasing its gold reserves due to the current economic climate; Singapore will be able to whether the financial storm we are facing right now.
Gold can be a good investment option right now, as it’s a good way to hedge against inflation and recession. If you hold cash, your money can be eaten away due to the poor interest rates vs inflation. And finally, while to US Dollar is likely to be the reserve currency for a while, we do not know what will happen in future. Will you be investing in gold, like Singapore?