What’s behind today’s new gold rush?

DW (English)

China, the US, Germany, Italy, and Russia are all on a gold-buying spree. For their central banks, gold is a stable reserve asset. The price of gold is at a record high as a result.

Transcript

00:00 Gold prices are high, but traders and investors are buying it in droves.

00:06 The World Gold Council estimates that an average of 130 billion US dollars are traded per day.

00:18 And central banks around the world are buying gold at an astonishing rate.

00:23 There has been this problem for many countries where the international payment and settlement systems

00:32 is dominated by the US and by the US dollar.

00:37 The central banks are in a kind of gold rush. But why?

00:42 And why is this man happy about it?

00:47 Decades ago, the world monetary system was based on gold.

00:51 The US central bank promised to exchange an ounce of it for $35 at any time.

00:57 As an investment, gold has a very, very long tradition.

01:01 Much longer than most traditional currencies.

01:05 The evidence suggests that ancient Egyptians prospected for gold 4,000 years ago.

01:12 That's how long the tradition has existed, and that presumably plays a very, very big role.

01:17 Including for the fact that it was long used as an anchor for many currency systems.

01:25 The gold-to-dollar guarantee is a thing of the past,

01:28 and until recently central banks were cutting back on their gold reserves.

01:33 But in the past 18 months, a number of central banks have been loading up on gold.

01:39 With these five countries as the leading purchasers,

01:42 worldwide central banks have been scooping up gold at the fastest pace in over 50 years.

01:49 Some EM central banks concerned about their exposure to the US dollar

01:54 and vulnerability in the sense of sanctions and/or freezing of central bank assets.

01:59 And then on the retail side, we've seen perennial demand from countries like Turkey,

02:06 where there's a very strong concern about currency depreciation.

02:11 And then more recently, in the last month in fact, in China, where we have similar concerns arising.

02:18 So are some countries buying gold in order to pursue a much bigger goal?

02:23 Perhaps to end the dominance of the US dollar in international trade?

02:27 Even now, international purchases are usually made in US dollars.

02:32 Much to the dismay of China, which has been on a gold-buying spree for years.

02:36 They want their huge stockpile to erode the dollar's dominance.

02:40 That process really hasn't gone very far.

02:43 China is now transacting commodities in Yuan, for example.

02:50 It's trying to have contracts on that basis.

02:53 But when you look at the share of the dollar within the global trading and financial settlement systems,

03:00 the dollar is still really dominant.

03:03 So I think it's something that will come over time, but I think it's going to be a very slow process.

03:09 It's a situation that's serving Russia well.

03:12 Moscow is sitting on the world's fifth largest gold reserve.

03:16 Not long ago, it's said to have sold hundreds of millions of US dollars worth of gold,

03:21 plumping up Putin's foreign currency reserves despite international sanctions.

03:26 Analysts expect that over the next months, a number of central banks will continue stocking up on gold.

03:33 So will the price of gold continue to rise,

03:37 even though it's already reached a historic high?

03:40 I do assume that perhaps in the coming year we'll set a new record for the price of gold.

03:47 I think the central banks will be an important factor in determining whether that premium can continue to remain in place.

03:55 High demand in the jewelry industry is another factor.

03:59 It's one of the top buyers of gold.

04:01 That's also likely to keep prices high,

04:04 which in turn is good for the central banks because it boosts the value of their gold reserves.

04:10 (upbeat music)

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