The history of gold’s flight to the developing world
by Alasdair Macleod, Peak Prosperity:
Western central banks have tried to shake off the constraints of gold for a long time, which have created enormous difficulties for them. They have generally succeeded in managing opinion in the developed nations but been demonstrably unsuccessful in the lesser-developed world, particularly in Asia. It is the growing wealth earned by these nations that has fuelled demand for gold since the late 1960s. There is precious little bullion left in the West today to supply rapidly increasing Asian demand, and it is important to understand how little there is and the dangers this poses for financial stability.
An examination of the facts shows central banks have been on the back foot with respect to Asian gold demand since the emergence of the petrodollar. In the late 1960s, demand for oil began to expand rapidly, with oil pegged at $1.80 per barrel. By 1971 the average price had increased to $2.24, and there is little doubt that the appetite for gold from Middle-Eastern oil exporters was growing; and it should have been clear to President Nixon’s advisers in 1971 that this was a developing problem when he decided to halt the run on the US’s gold reserves by suspending the last vestiges of gold convertibility.
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