The New Age Gold Rush: Why central governments are stockpiling gold.

The New Age Gold Rush: Why central governments are stockpiling gold.
Central bank gold buying has risen by an astonishing 82% in 2022

Gold has always been viewed as a long term hedge for over 5000 years, but recently gold’s relevance as a short term hedge in today's economic climate has become noticeable with gold prices rising 10.6%, demand for physical gold rising 10% to a 9 year high and central governments gold demand rising by an astonishing 82% in 2022.

There are some reasons for this:

With the S&P down 20% in the last year, bonds down 13%, Inflation "allegedly" at 5% the, dollar down 7% in the last 16 months; it is no wonder individuals are buying gold as a market hedge where there is no counter party risk and something that holds real wealth.

For governments, especially BRIC (Brazil, Russia, India, China) and others, beyond a hedge against economic uncertainty as the IMF slashes their global economic forecast in half; it is a vote against the dollar.

The BRIC nations and others rationale for trying to create a quasi-gold standard is for two reasons, both to do with the US dollar. As the US continues to print money to finance their heavy spending (monetising their debt), and global transactions take place in US dollars; BRICS and other resource rich nations are reluctant to continue functioning in a system where they are selling their valuable natural resources like rubber, coal, oil and rare earths for a Western controlled dollar that is doing a rolling devaluation. So logically trying to reduce their reliance on the dollar and have a push to something more measurable and controlled like a quasi gold standard is a rational step.

Secondly with the Russia Ukraine conflict, the United States use of the US dollar as a weapon against Russia made other countries who were maybe reluctant to try a new system shift gears on what is a concerted effort to find an alternative to the US dollar.

This is what is currently pushing the motivation for central governments to invest heavily in gold.

Sources:

DailyForex. (n.d.). Gold Technical Analysis: Gold Price Under Selling Pressure. [online] Available at: https://www.dailyforex.com/forex-technical-analysis/2023/04/gold-technical-analysis-april-24-2023/194556 [Accessed 24 Apr. 2023].

‌Strauss, L.C. (n.d.). There Are Plenty of Bargains in Bonds. Where to Shop Now. [online] www.barrons.com. Available at: https://www.barrons.com/articles/bond-market-federal-reserve-policy-c61d983e.

‌Fox, M. (n.d.). US stocks finish 2022 with another loss, ending the year down 20% in their worst performance since 2008. [online] Markets Insider. Available at: https://markets.businessinsider.com/news/stocks/stock-market-news-today-sp500-ends-year-down-20-percent-2022-12#:~:text=US%20stocks%20fell%20on%20the [Accessed 24 Apr. 2023].

‌FXStreet. (n.d.). Gold Price Weekly Forecast: Bulls struggle to keep XAU/USD above $2,000. [online] Available at: https://www.fxstreet.com/analysis/gold-price-weekly-forecast-bulls-struggle-to-keep-xau-usd-above-2-000-202304211510 [Accessed 24 Apr. 2023].

International Monetary Fund (2022). World Economic Outlook. [online] International Monetary Fund. Available at: https://www.imf.org/en/publications/weo.

‌Lang, H. and Lang, H. (2022). U.S. dollar down, still set for best year since 2015. Reuters. [online] 30 Dec. Available at: https://www.reuters.com/markets/currencies/dollar-eyes-best-year-since-2015-fed-rate-path-china-reopening-set-tone-2022-12-30/ [Accessed 24 Apr. 2023].

‌Nasdaq.com. (2023). Which Central Banks Bought the Most Gold in 2022? [online] Available at: https://www.nasdaq.com/articles/which-central-banks-bought-the-most-gold-in-2022 [Accessed 24 Apr. 2023].

Strauss, L.C. (n.d.). There Are Plenty of Bargains in Bonds. Where to Shop Now. [online] www.barrons.com. Available at: https://www.barrons.com/articles/bond-market-federal-reserve-policy-c61d983e.

‌Timiraos, G.G. and N. (n.d.). U.S. Inflation Eased to 5% in March. [online] WSJ. Available at: https://www.wsj.com/articles/us-inflation-march-2023-consumer-price-index-fa6eba99.

World Gold Council. (n.d.). Investment. [online] Available at: https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2022/investment [Accessed 24 Apr. 2023].‌


Read more