If time is money, gold is experiencing one of its best times. The yellow metal has been chaining historical records for several days in a row. After nine consecutive monthly gains, it is close to $2,300 per ounce, a figure never seen before.
There is a current factor that weighs: the next drop in interest rates. Jerome Powell, president of the Federal Reserve (Fed), pointed this week to a decline “at some point in the year.” This boosts the metal, because gold typically rises when the returns on other assets – in this case, the price of money – fall. “There are movements in the derivatives market: if gold exchange-traded funds (ETFs) see greater inflows, the price of gold may continue to rise,” says one investor.
It must be remembered that given the persistence of inflation, investors began many months ago to buy gold to protect their assets from depreciation. It is the same reason why bitcoin – which some consider cryptographic gold – has, in turn, skyrocketed to all-time highs. “The metal imitates the recent price evolution of bitcoin, which we consider its digital substitute,” says Yves Bonzon of Julius Baer.
Likewise, the colossal indebtedness of the United States also raises fears of a loss of confidence in the greenback, which could ultimately support the demand for gold (US public debt could reach 107% of GDP in 2029, surpassing the highs of World War II).
The other element to take into account is geopolitics. It is no coincidence that his bullish run began at the beginning of October, coinciding with the Hamas attacks against Israel, and accumulated an increase of 25%. When geopolitics become uncertain, it acts as a safe haven as gold has no default risk and has intrinsic real value. “The current conflicts, trade tensions and more than 60 electoral processes that will take place around the world will encourage investors to turn to gold,” analysts at the World Gold Council write in a note.
However, prices have been fueled by purchasing movements by central banks for a long time. A long-term trend that began with the great financial crisis of 2008. And that has now been accentuated – once again, for geopolitical reasons. “February data shows that global central bank gold reserves increased by 19 tons, the ninth consecutive month of growth,” Krish Gopaul, senior Europe and Middle East analyst at the World Gold Council, told this newspaper. In the last two years alone – with the war in Ukraine in the middle – central banks have accumulated 2,000 tons of gold.
In particular, since the subprime crisis (2008) the gold reserves of emerging central banks have more than doubled. In the last quarter of 2023, the largest acquisitions came from Türkiye and China. This group of countries wants, for geopolitical reasons, to move away from the dollar, which continues to represent two-thirds of the reserves of world central banks.
And then there is the case of Russia. Since the invasion of Crimea in 2013, the country began a progressive divestment of US bonds. And the percentage of gold in the reserves of its central bank has substantially increased, which has gone from 10% to 23%. The G-7 decision to freeze $300 billion in assets of the Russian central bank presented Russia with the question of whether it would not be better to preserve reserves in another way: with gold.
“Gold transactions offer advantages to circumvent sanctions, such as anonymity, poor traceability and alternatives to Western financial centers, where the United States and its allies can restrict trade flows,” Zouhoure Bousbih, strategist at Natixis IM emerging markets. Russia's gold accumulation strategy allowed it to resist as this market remained isolated, at first, from Western trade sanctions.
Thus, the United Arab Emirates have become a center for exchanging Russian gold for dollars and thus avoiding sanctions. Dubai imported 96.4 tons ($6.2 billion) of Russian gold in 2022, compared to 1.3 tons imported in 2021, or 75 times more. The other two countries that buy the most gold from Moscow are – of course – China and Turkey: Russia's ATMs, gold through.
