Gold News
Gold is being sought after by major market participants. Central banks have been buying a record amount of gold this year, the Dutch Central bank made hints at revaluing gold in case of insolvency, and the Australian Wealth Fund has bought more gold. Gold is useful against inflation, higher interest rates, and the fracturing of the global geopolitical order.
Gold is useful during inflation, which lowers interest rates. The central banks of the world should know since they had been increasingly printing the money that causes prices to rise since the 2008 Great Financial Crisis. They have also been buying a record amount of gold. Maybe they know something about the value of money.
According to Schiffgold.[1]
“Central banks added nearly 400 tons of gold in the third quarter, according to data compiled by the World Gold Council.
This was 300% higher than Q3 2021 and came in as the largest quarterly increase in central bank gold reserves since the World Gold Council started keeping records in 2000.
Including the mystery purchases, central banks globally added 393.3 tons of gold (net) in Q3 alone. With Octobers purchases, the total for 2022 stands at roughly 704 tons. That’s higher than any annual increase in central bank gold purchases since 1967 with two months remaining.”
However, in 2022 central banks have officially stopped printing money and have been raising interest rates so that prices don’t continue rising. This has caused problems for the Dutch central bank, De Nederlandsche Bank (DNB), as they have to pay increasingly unaffordable high interest rates as the European Central Bank (ECB) has raised interest rates in 2022 to lower prices from all the money that they had been printing since the Great Financial Crisis of 2008, and especially since the 2020 lockdowns.
Central banks would normally just print their own money to lower interest rates and bail themselves out like the ECB had been doing until 2022. The DNB uses the Euro so they can not print their own money and must deal with high interest rates another way.[2]
Luckily, gold is also useful against higher interest rates. Instead of printing money, the DCB can just revalue their gold higher, resulting in more money. The President of the DNB even made this point.
Per Jan Nieuwenhuijs, writing for Gainesville Coins,[3]
“On Sunday October 30, 2022, Knot was interviewed by Buitenhof about DNB’s losses. When the solvency of DNB’s balance sheet was questioned Knot brought up the GRA.
Interviewer: So, what you're saying is that the higher the interest rate by the European Central Bank, the more expensive it gets for us ...
Knot: Yes, that is correct ...
Interviewer: ... and the more money is needed. Hold on, I want to finish my question, so we all understand. And the higher the probability the Dutch taxpayer has to pay to fix the balance sheet of the Dutch central bank of which I always thought, "that's solid, it can't fail." This story is new to me.
Knot: The balance sheet of the Dutch central banks is solid because we also have gold reserves and the gold revaluation account is more than 20 billion euros, which we may not count as equity, but it is there.
Interviewer: But you don't want to sell the gold?
Knot: No, we're definitely not going to sell.”
Central banks are stuck between a rock and a hard place. Either they act as the lender of last resort by printing the money that governments and people need to stay solvent and the money becomes worth less and worthless, or they stop printing money, raise interest rates, dry up the supply of affordable loans, and cause defaults on a record scale. Either way, gold is useful.[4]
Finally, gold is useful against the fracturing of the global geopolitical order. The Future Fund, Australia’s sovereign wealth fund, put out a paper that hits the nail on the head. The December 2022 paper entitled, Position Paper - The Death of Traditional Portfolio Construction?, states,[5]
“There have been 30 years of globalisation since the fall of the Berlin Wall; 20–30 years of remarkable Chinese growth; four decades of post-Volker interest rate declines; energy and food abundance; 13 years of extraordinary monetary policy (QE); a 30-year peace dividend, and a 30-year excess of global labour and capital mobility with ever declining costs of capital and lower tax rates.
These trends have provided a tailwind to investment returns, which can no longer be relied upon.
Most – if not all – of these trends are in reverse. A real possibility exists that investors face a world characterised by the fracturing of the global geopolitical order, bigger government, more extreme forms of monetary policy, and the risk of sustained higher inflation.”
Their paper concludes on page 7,
Portfolio implications: More defensive levers, inflation protection
Levers activated: Added Gold, Commodities, Tangibles, Alternatives
One example of the fracturing of the global geopolitical order is the potential replacement of the dollar as being necessary to buy oil. Since the end of the gold standard for the dollar in 1971 and the US-Saudi Arabian (OPEC) agreement in 1974, one major value of the dollar has been that it is necessary to buy oil anywhere in the world (petro-dollar). Russia is being kicked out of the metro-dollar system as a result of Western sanctions and Russia’s war in Ukraine. Xi went to Saudi Arabia to make deals with several Arab nations to propose trading their oil and natural gas for the Chinese Yuan instead of the US dollar. If the dollar isn’t needed to buy oil, it will make the dollar worth less, resulting in higher dollar prices for oil and everything.[6][7]
Ralph Jennings, writing for the South China Morning Posts, posted on Dec 12, 2022,[8]
“‘China and the Middle East in the past would use US dollars as their long-term currency,’ said Zhao Xijun, associate dean of the School of Finance at Renmin University in Beijing.
‘But in face of geopolitics and US sanctions in the finance space, so few countries are considering whether they can use other currencies to settle oil and gas accounts.’
The number of yuan deals should rise, however, because China - the world’s biggest buyer of oil - would ask exporters to use its currency, Zhao said.
Other parts of the world will catch on if yuan exchange procedures are convenient and the Chinese currency is regarded as ‘safer’ than the dollar, he said. Among the candidates are Hong Kong, Singapore and some European nations.
Chinese President Xi Jinping proposed last week at the China-Arab Summit to boost oil and gas settlements denominated in yuan with the six Gulf Cooperation Council states within three to five years.”
China just announced this month (December 2022) that they have been buying gold, after making no announcements since 2019.[9]
Gold is being sought after by major market participants. Central banks have been buying a record amount of gold this year, the Dutch Central bank made hints at revaluing gold in case of insolvency, and the Australian Wealth Fund has bought more gold. Gold is useful against inflation, higher interest rates, and the fracturing of the global geopolitical order.
[1]https://schiffgold.com/key-gold-news/central-banks-start-q4-buying-more-gold/
[2]https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
[3]https://www.gainesvillecoins.com/blog/dutch-central-bank-says-gold-revaluation-is-solvency-backstop
[4]https://www.hamiltonmobley.com/blog/printing-money-lowers-interest-rates
[5]https://www.futurefund.gov.au
[6]https://www.hamiltonmobley.com/blog/the-death-of-the-petro-dollar
