Much is being said about the World Gold Council’s report that central banks are backing up the truck for gold. The net increase in 2018 was 651.5 metric tonnes, up from 375 tonnes in 2017.
By volume this is the largest net purchase since 1967.
This does not mean there’s a global stampede into gold, of course. Most the purchasing was concentrated among a few banks—the usual suspects. Russia bought the most, apparently all but liquidating its US treasury holdings in the process. That makes perfect sense, given the sanctions Russia faces.
Could Russia, China—or both and their allies—adopt some sort of new gold standard to negate the US’ power to punish them via restrictions in the flow of US dollars? Sure they could, and there’s evidence they are moving in that direction. But such a drastic change would upset the apple cart for everyone. I don’t think we’ve reached the point where that would seem like a good idea to them.
I do think the days of the US dollar as the reserve currency of the world are numbered.
I’m skeptical that the yuan or ruble will replace it, though one backed by gold could have a real shot at that. It’s just my guess, but it seems more likely to me that the world will turn to the euro, or even the yen, before giving up on paper money entirely.
When people do lose all faith in fiat currencies, the world will be in total crisis. I could see some sort of internationally robust gold-backed crypto emerging from that crash as the most widely accepted form of currency.
Until then, we adventure on.
The adventure du jour generating buzz is the March 29, 2019 start date for the Bank for International Settlements’ “Basel 3” rules.
Under these rules, central banks can count their gold holdings, marked to market, as equivalent to cash. I agree that this is significant, and bullish for gold.
But several sources have made a big deal of an Italian journal (Il Sole/24 Ore) accusing central banks of suppressing gold prices in order to buy as much as they can in advance of the March 29 deadline. This, via manipulation of the paper gold markets of the sort my friends at GATA have been decrying for years. What’s different is that this action is tied to a specific date, in the very near term.
If it’s true, then we should see the central banks involved stop suppressing gold prices. They might even start supporting them, as their marked to market holdings would improve their balance sheets as gold prices rise.
Well, yes—if it’s true. This remains to be seen. And even if it is true, it’s not safe to assume that the central banker conspirators are stupid enough to be obvious about what they are doing.
We could indeed see a tidal shift. Just remember that the instant a tide shifts is imperceptible. It’s only after a rising or falling tide gains momentum that begins to sweep all before it.
As with other exciting date-focused headlines, I wouldn’t expect any fireworks in gold prices on March 29.
Remember all the exciting headlines spun around the Chinese yuan joining the IFM currency basket in 2015? They might even be true; that could be the day future historians peg as the beginning of the end for the US dollar’s hegemony.
But here we are, years later, and still no fireworks.
Remember the more recent headlines declaring that China would destroy the petrodollar system by settling oil trades in gold? Again, this could eventually be true, but it was supposed to tank the dollar and send gold to the moon last year.
We’re still waiting.
Don’t get me wrong; I’m not saying that any of the above theories are false.
I’m just cautioning readers against falling for hype that creates unrealistic expectations.
Be especially cautious if such game-changing deadlines come with a sales pitch for some product or service.
And if you do buy into an exciting deadline—sometimes there really are game-changing developments—be sure not to go all in on any speculation that will crater if the game-changer doesn’t appear on schedule.
For more on avoiding hype, please watch the first few minutes of my most recent live webcast, where that subject was front and center.