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A record pile of gold owned by central banks. News that no one noticed

According to recently published data from the World Gold Council, as of September 2021, the total amount of gold in the reserves of central banks worldwide exceeded 36,000 tons for the first time since 1990. This 31-year record resulted from central banks adding more than 4,500 tons of gold to their reserves over the past decade investing in gold, both in concrete results and from a bird’s-eye view.

This new record mostly went unnoticed in the major media. It was almost not reflected in the central banks’ official reports or their recommendations or comments on monetary policy issues. On the contrary, the economic leadership in the United States, the Eurozone, and most other major economies have been stubbornly repeating the same theses for more than two years, as well as various arguments that should neutralize any statements in favor of owning gold.

For example, until the very last moment, decisively dismissed inflation as “fleeting,” and the leading managers of the;

Fed and the ECB constantly assured investors and the public that consumer prices were under control and the early rate hikes that we saw last year were just a glitch.

As the pressure mounted, it became clear that the official inflation statistics (this already poorly constructed and misleading metric) differed markedly from the official version of the central bankers, so they had to make a 180-degree turn, at least in theory, if not in practice. However, the most important thing here is that if the public statements of central bankers corresponded to their economic and strategic worldview, they would have no apparent reason to build up gold reserves.

Not the first time we have observed a dissonance between the words and actions of officials of all ranks, not only central bankers. That is why investors should pay more attention to specific steps and ignore the words that accompany or hide these steps. As they say, “do as I do, not as I say.”

The share of gold in gold and foreign exchange reserves, in %: Kazakhstan, Turkey, Russia, Mongolia, Kyrgyzstan, Hungary, Poland, Qatar, Thailand, China. For September 2021. Sources: The IMF, the World Gold Council And although inflation risks continue to occupy an important place in the lists of threats of most conservative investors, there is also a more extensive, long-term shift, which highlights the frenzied buying of gold by central banks: the rule of the dollar as the world reserve currency is slowly but surely coming to an end.

The value of the US dollar against gold has noticeably decreased, and not only gold investors and savers are closely following this trend. Central bankers in Russia, China, and other countries moving in their wake have been trying to knock the US dollar off its pedestal for years, not an easy battle. As a result, the US currency dominates over all others in international trade and gold reserves. However, this campaign against the US dollar does not slow down.

She may have reached a new milestone a few weeks ago. According to a report by the Bank of Russia analyzed by Bloomberg last year, the amount of gold owned by the central bank of Russia for the first time in history exceeded the size of the country’s dollar reserves. At the end of June, gold accounted for 23% of total resources, while the share of the US dollar in Russian reserves fell to 22%. Meanwhile, many other countries are also accelerating the pace of their gold purchases while simultaneously selling off their dollar reserves.

And this is especially noticeable in the countries of Eastern Europe and Asia. In the first nine months of 2021 alone, Thailand bought about 90 tons, India – 70 tons, and Brazil – 60 tons. As a recent Nikkei Asia research note emphasized, “the volume of dollars in foreign exchange reserves is falling, while gold is growing. In 2020, the ratio of the current US dollar decreased the lowest level in a quarter of a century.” In general, investors should keep a close eye on this shift.

And central bankers themselves are aware of this, as the depreciation of paper currencies continues and even accelerates in recent months and years. That is why physical gold will be the only reliable and time-tested shelter from the storm that awaits us ahead.


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