Gold is like a mini skirt, periodically returns to fashion and again becomes a hit, although numerous economists have written it several times as a “relic of barbarism”, which has neither the purpose nor the future in the modern world of finance. But faced with an uncertain future, central bankers in gold still see a sort of “insurance policy”. The new golden fever is led by Russia and China to reduce US dollar participation in its foreign exchange reserves, while in Italy, which is ranked third in the world’s gold reserves, the current government is trying to formally transfer ownership of gold reserves from the central bank to the government.
Last year, at the global level, the central bank bought 651 tonnes of gold, a record amount in recent years, and the new golden fever is led by Russia and China whose central banks buy gold with full steam while at the same time reducing US dollar participation in their foreign exchange reserves.
In the case of Russia, this is not too surprising as it faces US sanctions, de-dollarization is the official policy, in order to reduce the overall dependence of the Russian economy on the dollar and the international financial system, which is practically under the effective control of the United States.
The trend is changing, because at the end of the nineties, the belief that gold days were counted, and the central bank of Great Britain, Canada and a number of other countries, sold their gold reserves, only to be solved. An extreme example is Canada, which has sold its entire gold reserves over the past ten years, while Britain has reduced its reserves to 310 tons in 2008 from 588 tonnes in 2000, and remained at that level to date.
Russia quadrupled gold reserves
With massive gold buying, Russia began ten years ago, following the global financial crisis of 2008, when Russian gold reserves amounted to a relatively modest 519 tons of gold. At the end of last year, these reserves rose to an impressive 2.113 tonnes. Russia practically quadrupled its gold reserves over the last 10 years, with only 275 tonnes of gold alone last year. In all likelihood, the Central Bank of Russia will continue to accelerate the purchase of gold, while reducing the share of dollars in its foreign exchange reserves.
The situation is similar to China, which in 2008 had 600 tons of gold in foreign exchange reserves so that at the end of last year this amount rose to 1.852 tons. In the case of China, the motives are slightly different than in Russia. China is under the political and economic pressure of the United States, but it is far from sanctions imposed on Russia, and it is unlikely that China will be in such a position, as it would effectively lead to the collapse of the global economy, bearing in mind that most global companies have long moved production in China.
But China has a dollar problem as there are too many of them, as a result of a trade surplus with the United States and the rest of the world. For China, this is a problem because unlimited printing of the dollar, from a million called “quantitative easing,” sooner or later leads to a fall in real value, which is bad news if you have thousands of billions of dollars in exchange for completely tangible products. Long-term Chinese ambitions are that the yuan be accepted as a global currency, in the same ranges as the dollar and the euro, which implies stability and confidence, and regardless of the fact that the golden currency coverage has long been rejected, in the moments of the crisis, gold is still what counts.