Central banks invest in gold for many reasons. There are well known
reasons such as
- gold’s role as a safe haven asset and
- an effective portfolio diversifier.
But the survey results also reveal that there are other important reasons relevant to central banks, such as
- gold’s ability to improve risk-adjusted returns and
- its use as valuable collateral
both of which were viewed as relevant by 71% of central banks.
moreover,
- Low U.S. interest rates,
- the Trump administration’s unpredictable combativeness and
- insatiable appetite for debt, and
- geopolitical tensions. These central bank buyers are predominantly from countries that stand in direct economic or political opposition to the U.S., and so are keen to move away from the U.S. dollar as a foreign reserve currency.
are making gold look like a safer asset than U.S. debt instruments. A few more years of this, and it’s possible that more countries’ international reserves will be structured like Russia’s.
Russia was the biggest buyer during the period, adding 55.3 tonnes of the yellow metal to tilt the composition of its reserves away from the US dollar, amid rising tensions with Washington and the prospect of further sanctions. China added 33 tonnes to its holdings and Ecuador bought gold for the first time since 2014, said the WGC. “There’s been lots of purchases by emerging market central banks looking to diversify their US dollar exposure, or in the case of Russia there are potential implications for FX reserve management if they become subject to sanction risk,” said Alistair Hewitt, a director at the WGC.
Inflows into exchange traded funds backed by gold rose 49 per cent from a year earlier to hit 40.3 tonnes, said the WGC. European gold-backed exchange traded funds hit a record high of $48bn during the first quarter, now accounting for 45 per cent of the global gold ETF market, it added.
paper printing:
Modern Monetary Theory posits that rather than obsessing about how large the debt has grown (over $2 trillion) and the ongoing annual deficits that fuel debt, government should target certain spending programs that will cause minimal inflation.
Curb inflation and the debt can keep growing, with no consequences. This is because the US government can never run out of money. It just keeps printing money, because dollars are always in demand (with the dollar being the reserve currency, and commodities are traded in dollars).
Government is therefore given a free pass on spending, because the only thing that we have to worry about with the national debt is inflation.
Fiscal policy on steroids is, according to its proponents, to be the new engine of US growth and prosperity.
Even if MMT isn’t adopted, and it’s extremely unlikely that it would be, just the idea of the US dollar losing its role as the world’s reserve currency is alarming.
If it happened suddenly, a massive sell-off of US Treasuries would result, crashing the value of the dollar. It would make the financial crisis of 2008-09 look like a mere stock market correction.
mining.com
- gold’s role as a safe haven asset and
- an effective portfolio diversifier.
But the survey results also reveal that there are other important reasons relevant to central banks, such as
- gold’s ability to improve risk-adjusted returns and
- its use as valuable collateral
both of which were viewed as relevant by 71% of central banks.
moreover,
- Low U.S. interest rates,
- the Trump administration’s unpredictable combativeness and
- insatiable appetite for debt, and
- geopolitical tensions. These central bank buyers are predominantly from countries that stand in direct economic or political opposition to the U.S., and so are keen to move away from the U.S. dollar as a foreign reserve currency.
are making gold look like a safer asset than U.S. debt instruments. A few more years of this, and it’s possible that more countries’ international reserves will be structured like Russia’s.
Russia was the biggest buyer during the period, adding 55.3 tonnes of the yellow metal to tilt the composition of its reserves away from the US dollar, amid rising tensions with Washington and the prospect of further sanctions. China added 33 tonnes to its holdings and Ecuador bought gold for the first time since 2014, said the WGC. “There’s been lots of purchases by emerging market central banks looking to diversify their US dollar exposure, or in the case of Russia there are potential implications for FX reserve management if they become subject to sanction risk,” said Alistair Hewitt, a director at the WGC.
Inflows into exchange traded funds backed by gold rose 49 per cent from a year earlier to hit 40.3 tonnes, said the WGC. European gold-backed exchange traded funds hit a record high of $48bn during the first quarter, now accounting for 45 per cent of the global gold ETF market, it added.
paper printing:
Modern Monetary Theory posits that rather than obsessing about how large the debt has grown (over $2 trillion) and the ongoing annual deficits that fuel debt, government should target certain spending programs that will cause minimal inflation.
Curb inflation and the debt can keep growing, with no consequences. This is because the US government can never run out of money. It just keeps printing money, because dollars are always in demand (with the dollar being the reserve currency, and commodities are traded in dollars).
Government is therefore given a free pass on spending, because the only thing that we have to worry about with the national debt is inflation.
Fiscal policy on steroids is, according to its proponents, to be the new engine of US growth and prosperity.
Even if MMT isn’t adopted, and it’s extremely unlikely that it would be, just the idea of the US dollar losing its role as the world’s reserve currency is alarming.
If it happened suddenly, a massive sell-off of US Treasuries would result, crashing the value of the dollar. It would make the financial crisis of 2008-09 look like a mere stock market correction.
mining.com
Gold investors should not rely on just one indicator, but should include all fundamental factors influencing the bullion price and the general context in their analysis. You see: the inversion of the yield curve used to be a relatively good indicator of the recession (although not always and with a couple of false alarms), but it lost some of its predictive power due to the central bank’s unconventional monetary policy. The reason is that, because of the quantitative easing and other nonstandard measures, the yield curve is much flatter than it normally would be at this stage of the business cycle (most estimates suggest the order of about 50 basis points). It means that without the central bank asset purchases, the long-term interest rates would be higher, and the yield curve would be steeper. So, even if the yield curve inverse, it does not necessarily signal the upcoming recession.
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