If time is gold, gold is living one of the best times. The yellow metal has been chaining historical records for several days in a row. After nine consecutive monthly gains, it is nearing $2,300 an ounce, a figure never seen before.
There is a conjunctural 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 usually rises when 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 larger inflows, it is possible that the price of gold will rise further," comments one investor.
It must be remembered that, due to the persistence of inflation, investors began many months ago to buy gold to protect assets from depreciation. It is the same reason why bitcoin – considered by some to be cryptographic gold – has soared, in turn, to historic records. "The metal imitates the price evolution of bitcoin, which we consider the digital substitute", explains Yves, of Julius Baer. In addition, the country's colossal debt also raises fears of a loss of confidence in the greenback, which could ultimately benefit gold demand (US public debt could reach 107% of GDP by 2029, so which would exceed the highs of the Second World War).
The other element that must be taken into account is geopolitics. It is no coincidence that its bull run began at the beginning of October, coinciding with the attacks by Hamas against Israel, and accumulated a rise of 25%. When geopolitics becomes uncertain, it acts as a safe-haven asset, as gold has no risk of default 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 orient themselves towards gold", write in a note the analysts of the World Gold Council.
However, stock prices have long been fueled by central bank buying moves, a long-term trend that began with the Great Financial Crisis of 2008 and has now intensified – again, for geopolitical reasons -. "February data shows that global central bank gold reserves increased by 19 tonnes, the ninth consecutive month of growth," Krish Gopaul, senior analyst for Europe and the Middle East at World Gold, told this newspaper. Council. 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 biggest acquisitions were from Turkey and China. This group of countries wants, for geopolitical reasons, to move away from the dollar, which still represents two-thirds of the reserves of the world's central banks.
And then there is the case of Russia. Since the invasion of Crimea in 2013, the country began a gradual divestment of US bonds. And it has substantially increased the percentage of gold in its central bank reserves, which have gone from 10% to 23%. The decision by the G-7 to freeze $300 billion in Russian central bank assets raised in Russia the question of whether it would not be better to preserve reserves in another way: with gold.
"Gold transactions offer advantages for evading sanctions, such as anonymity, little traceability and alternatives to Western financial centers, where the United States and its allies can restrict trade flows," a study highlights Zouhoure Bousbih, Emerging Markets Strategist at Natixis IM. Russia's gold accumulation strategy allowed it to resist, as this market was initially insulated from Western trade sanctions.
Thus, the United Arab Emirates has become a center for exchanging Russian gold for dollars and, in this way, circumventing sanctions. Dubai imported 96.4 tons ($6.2 billion) of Russian gold in 2022, compared to 1.3 tons imported in 2021, i.e. 75 times more. The other two countries that buy the most gold from Moscow are – of course – China and Turkey: Russia's ATMs, thanks to the yellow metal.
