Where’s All the Gold Going?

August 24, 2023

You probably didn’t notice. 

The mainstream financial media certainly wasn’t talking about it. 

But gold — the shiny yellow metal that’s been both beloved and derided as a store of value — has been the object of a major buying spree. And who have the buyers been?

Central banks.

According to the World Gold Council:

Some 1,136 metric tons to be exact. That number is the largest annual purchase amount on record.

And who specifically was doing all the buying? Maybe not who you’d expect. Last year Turkey, Egypt, Qatar, Iraq, teh UAE, India, Oman, Uzbekistan and others were all major participants. 

And the buying spree has continued this year as well with Singapore, China, Russia, India and once again Turkey all jumping in. 

So why the sudden explosion in interest? And why these countries?

Trouble With the Dollar?

In the past we’ve written about the official status of the US dollar in world trade. Specifically how important it is to the US to be the reserve currency. Here

That status has allowed the U.S. to be incredibly fiscally irresponsible and not have to bear what would be the typical consequences of that behavior.

And here

The dollar’s status as the world’s reserve currency is the lynchpin that holds our debt-ridden economy together. The loss of that status would mean that there is no “automatic” need for other countries to purchase dollars — or our debt.

Believe it or not, the US dollar is our country’s biggest export. We carry a massive trade deficit (we buy way more than we sell) which means we’re pumping dollars to the rest of the world like crazy. (It’s also massively inflationary.) But to one degree or another, the rest of the world needs those dollars to buy certain goods… like oil. 

But lately things have gotten even more squirrely. 

In response to Russia’s invasion of Ukraine last year, the US froze US dollars held by Russian affiliated businesses. Say what you will about the morality of the war, those were dollars that belonged to those businesses that the US effectively stepped in and took back. Not a good trading partner.

Time to Trade in Gold BRICS?

The term BRIC was coined in 2001 by Goldman Sachs economist Jim O’Neill.

It stood for Brazil, Russia, India and China whose economies he predicted would eventually outpace the Western world. Turns out he was just a little early. (In 2011, South Africa joined the coalition to add the “S” to its acronym.)

In just the last two years O’Neill’s prediction of these economies’ growth has come to pass and the BRICS are a force to be reckoned with. If you look at the chart below, you can see that they’ve actually eclipsed the G7 economies on a purchasing power parity basis.

That’s something that should not go unnoticed. And this coalition is getting even bolder.

Later this month they plan to announce a new “global trading currency” that will be — you guessed it — backed by gold!

And probably not surprisingly, given the recent global demand for gold, 41 countries have applied for BRICS membership.

This is the most serious action ever taken to de-dollarize the global economy.  But will it work? 

Well, the dollar’s not disappearing anytime soon. 

Beyond that, we’ll have to see what they have planned…

Humbly yours,

Tim Collins
Editor, Streetlight Daily