Central banks snub Bitcoin, rake in gold as inflation fears hit exchequers

Central banks snub Bitcoin, rakes in gold as inflation fears hit exchequers
Image by Linda Hamilton from Pixabay

Key takeaways

  • Central bank gold buying surged in the first half of this year
  • Apex banks prefer the yellow metal as a better hedge against ongoing global inflation
  • Bitcoin is still not on the “diversification” list

JAIPUR (Coinchapter.com) – When it comes to hedging against rising inflation, central banks across the world prefer gold over Bitcoin. Recent World Gold Council data suggests that central banks have only kept adding to their yellow metal coffers and will continue to do so for the foreseeable future.

According to the 2021 Central Bank Gold Reserves (CBGR) survey, 21% of central banks intend to increase their gold reserves over the next 12 months.

2021 Central Bank Gold Reserves Survey, World Gold Council

Crisis resilience, past reputation, long-term store of value, high liquidity, adequate portfolio diversification are reasons central banks cited for their gold advocacy. Standard Chartered Plc’s precious metals analyst Suki Cooper corroborated:

Geopolitical tensions, the need for diversification and heightened uncertainty have continued to buoy interest in gold reserves.

Reasons central banks provided for buying and holding gold
Reasons central banks provided for buying and holding gold, Source: 2021 Central Bank Gold Reserves Survey, World Gold Council.

De-dollarization And Diversification

While de-dollarization scored low on the above response meter, central bank gold reserve proliferation is a primary motivating factor.

If a central bank is looking at diversifying, gold is a marvelous way of moving out of the dollar without selecting another currency.

James Steel, chief precious metals analyst at HSBC Holdings Plc told Bloomberg

And this is just the beginning, according to HSBC. The banking giant noted that central banks are likely to play the ‘marvelous diversifier’ card in 2022 as well.

Central banks will continue to diversify into gold
Central banks will continue to diversify into gold. Source: Bloomberg

But Why No Bitcoin?

The diversification into gold (while completely ignoring Bitcoin) move has drawn flak from investment industry leaders. That is wide because central banks worldwide have been churning out record amounts of cash to support their economies while piling up on the yellow metal.

Printing money, while buying gold .. #CBBizModel #nobitcoin

said Willem Middelkoop, a successful investor, entrepreneur and publicist

Comments blasting the above central bank moves as theft and evil poured in.

“It’s pure theft. You print money out of thin air faster than your neighbors, and you can buy more tangible assets”, said Joey Keasberry.

According to some advocates of the top cryptocurrency, at least the printed cash could have been “better utilized” to buy Bitcoin.

Since diversification has been the principal reason for central banks scooping up truck loads of gold in H1 2021, adding Bitcoin to the mix could tip the scales of inflation hedging in their favor.

Delta Variant, Bitcoin, Gold and Long Bonds Potential 2H Winners – #Gold, #Bitcoin and U.S. Treasury long #bonds share substantial corrections within enduring bull markets, dynamics that we see tilting the trio toward the top of 2H performers.

said Mike McGlone, Senior Commodity Strategist – Bloomberg Intelligence

Related: Delta variant bullish for Bitcoin and gold says Bloomberg strategist

The top cryptocurrency is moved beyond $40,000 and looks to tap the crucial $41,000 resistance level next. This comes after Bitcoin dropped more than 50% from all-time highs around $65,000. So, central banks, are you reading this?

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