China, the US, Germany, Italy, and Russia are all on a gold-buying spree. For their central banks, gold is a stable reserve asset. The price of gold is at a record high as a result.
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00:00 Gold prices are high, but traders and investors are buying it in droves.
00:06 The World Gold Council estimates that an average of 130 billion US dollars are traded per day.
00:18 And central banks around the world are buying gold at an astonishing rate.
00:23 There has been this problem for many countries where the international payment and settlement systems
00:32 is dominated by the US and by the US dollar.
00:37 The central banks are in a kind of gold rush. But why?
00:42 And why is this man happy about it?
00:47 Decades ago, the world monetary system was based on gold.
00:51 The US central bank promised to exchange an ounce of it for $35 at any time.
00:57 As an investment, gold has a very, very long tradition.
01:01 Much longer than most traditional currencies.
01:05 The evidence suggests that ancient Egyptians prospected for gold 4,000 years ago.
01:12 That's how long the tradition has existed, and that presumably plays a very, very big role.
01:17 Including for the fact that it was long used as an anchor for many currency systems.
01:25 The gold-to-dollar guarantee is a thing of the past,
01:28 and until recently central banks were cutting back on their gold reserves.
01:33 But in the past 18 months, a number of central banks have been loading up on gold.
01:39 With these five countries as the leading purchasers,
01:42 worldwide central banks have been scooping up gold at the fastest pace in over 50 years.
01:49 Some EM central banks concerned about their exposure to the US dollar
01:54 and vulnerability in the sense of sanctions and/or freezing of central bank assets.
01:59 And then on the retail side, we've seen perennial demand from countries like Turkey,
02:06 where there's a very strong concern about currency depreciation.
02:11 And then more recently, in the last month in fact, in China, where we have similar concerns arising.
02:18 So are some countries buying gold in order to pursue a much bigger goal?
02:23 Perhaps to end the dominance of the US dollar in international trade?
02:27 Even now, international purchases are usually made in US dollars.
02:32 Much to the dismay of China, which has been on a gold-buying spree for years.
02:36 They want their huge stockpile to erode the dollar's dominance.
02:40 That process really hasn't gone very far.
02:43 China is now transacting commodities in Yuan, for example.
02:50 It's trying to have contracts on that basis.
02:53 But when you look at the share of the dollar within the global trading and financial settlement systems,
03:00 the dollar is still really dominant.
03:03 So I think it's something that will come over time, but I think it's going to be a very slow process.
03:09 It's a situation that's serving Russia well.
03:12 Moscow is sitting on the world's fifth largest gold reserve.
03:16 Not long ago, it's said to have sold hundreds of millions of US dollars worth of gold,
03:21 plumping up Putin's foreign currency reserves despite international sanctions.
03:26 Analysts expect that over the next months, a number of central banks will continue stocking up on gold.
03:33 So will the price of gold continue to rise,
03:37 even though it's already reached a historic high?
03:40 I do assume that perhaps in the coming year we'll set a new record for the price of gold.
03:47 I think the central banks will be an important factor in determining whether that premium can continue to remain in place.
03:55 High demand in the jewelry industry is another factor.
03:59 It's one of the top buyers of gold.
04:01 That's also likely to keep prices high,
04:04 which in turn is good for the central banks because it boosts the value of their gold reserves.
04:10 (upbeat music)