from Birch Gold Group:
This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: A World Bank insider explains central banks’ gold buying surge; yet another all-time high for gold’s price, , and just how strange is the lack of price action in silver?
World Bank insider explains exactly why central banks are de-dollarizing with gold
The World Bank just published a very interesting report, Gold Investing Handbook for Asset Managers. The author, veteran central banker Kamol Alimukhamedov explains exactly why central banks are dedollarizing and buying record quantities of gold (for two years in a row).
TRUTH LIVES on at https://sgtreport.tv/
The overarching idea, that central banks see gold as their best economic and political asset isn’t exactly new. We’ve been speculating about their motives for two years now. Alimukhamedov elaborates on their motives to an interesting degree. Personally I give this report a lot more respect than much of the research I read for three reasons:
- Alimukhamedov is a central banker, moving in the lofty circles of the financial super-elite and presumably a lot more tuned in to what these folks talk about behind closed doors than you or I.
- His report was published by the World Bank! If that’s not an official imprimatur, I don’t know what is.
- Alimukhamedov isn’t selling anything – he’s not a trading house analyst talking his book. He’s a bureaucrat, not a bullion merchant.
First off, Alimukhamedov points out that the largest increases in central bank gold holdings occur when its country either anticipates or actually faces financial sanctions.
Russia’s example is a textbook one. It was already sanctioned extensively by the West in 2014 and 2015 – remember the invasion of Crimea? That’s when the Central Bank of the Russian Federation began making huge and regular gold purchases and became the top gold buyer year after year. After the Ukraine invasion, U.S. and NATO sanctions became much worse… Yet the Russian gold hoard provided exactly the safety and liquidity the nation needed to mostly just shrug off the biggest stick the West could beat them with. Not even freezing nearly half of Russia’s central bank reserves, and denying the entire nation the SWIFT network (think Zelle for central banks) forced Russia to reconsider the invasion.
Other nations, geopolitical rivals (China) or potential regional rivals (Brazil, India) watched this happen. Their dollar assets, their national savings accounts, are one executive order away from becoming worthless. A dollar is only worth as much as a nation’s political relationship with the U.S. president.
That’s the weaponization argument – but it’s just a little too cut-and-dried. Consider, at the same time many countries that are considered peripherally Western (like Hungary or Poland) have been buying loads of gold bullion. I doubt Hungary is worried about Western sanctions. Poland is a NATO member nation, for crying out loud! They’re buying gold for another reason.
The main part of Alimukhamedov’s analysis is something he calls “Bretton Woods 3.” To quote a story we covered quite a while back:
“The world always returns to gold.”
Alimukhamedov outlines how the world went from gold bullion, to “inside money” (or IOUs that come with with confiscation risks) and seems to be going back to gold bullion again.
The only question that remains is whether the world has learned its lesson this time around.
Alimukhamedov also gives a nod to various market disruptions from 2008 onwards, which makes sense, as central banks became net buyers in 2010 and haven’t really looked back. To him, the curiosity now is whether other central banks are going to follow suit after Russia and jump into gold bullion as a means of protection. (To Kitco’s Ernest Hoffman, the last two years have already answered that.)
Alimukhamedov answers one question that I hear a lot: “Why do central banks have gold anyway?” Here you go:
Central banks are responsible for managing a country’s monetary policy and financial stability. One of their primary functions is to hold foreign reserves, which are assets held in foreign currencies or other financial instruments…
…central banks typically have three main objectives: safety, liquidity, and return generation. According to the latest World Bank survey, the majority of central banks – over 94 percent of the respondents – consider safety and liquidity to be highly relevant principles. On the other hand, only one-third of the banks gave high relevance to income generation or returns, while 65 percent considered it somewhat relevant. [emphasis added]
I‘ve said it before and I’ll say it again: Central banks own gold for the same reasons individuals do!
Frank Holmes often says that gold’s main drivers are the love trade and fear trade. The massive move up we are seeing might be the result of the fear trade materializing in ways unseen. Not to say that individual investors don’t have important things to protect, but for sovereign nations, the stakes are much higher.
