Asia Nikkei: World's central banks lose interest in dollar and yuan, buy gold

The world's central banks continue buying gold while losing interest in the dollar and yuan. The price of gold is setting another record.

Photo: pixabay by Стивбидмид, PDM

According to Asia Nikkei, banks all over the world have been losing interest in US and Chinese currencies. As always, gold remains the most reliable asset. Financial sanctions against Russia convinced developing economies to invest in gold that is not pegged to any specific country or currency.

In the first half of 2024, central banks of the world have bought a record 483 tons of gold, according to the International Monetary Fund (IMF).

As of March 2024, the world's total foreign exchange reserves amounted to about $12.03 trillion, with the dollar accounting for 58.9 percent on a currency-by-currency basis, which marked a decrease from 70 percent in the early 2000s.

The yuan is at risk

The share of yuan in global foreign exchange reserves fell to 2.2 percent at the end of March, down 0.7% from its peak in March 2022.

Mizuho Bank chief market economist Daisuke Karakama told the newspaper that Western countries could abandon the yuan and turn to other currencies due to expectations of sanctions against China which supported Russia in its special operation in Ukraine.

An April report from Goldman Sachs found that Ukraine, Norway, Brazil, and seven other countries that disclose the qualitative composition of their foreign exchange reserves reduced their yuan holdings from the first quarter of 2022 to the fourth quarter of 2023. In particular, Switzerland and Israel used up a significant portion of their yuan reserves.

Central banks of the world purchased a total of 1,030 tons of gold in 2023 after a record of 1,082 tons in 2022. Net purchases thus exceed 1,000 tons for two consecutive years.

China and India as most active gold buyers

The most active gold buyer is China, which has been actively buying gold for a year and a half. India, like China, is trying to reduce its dependence on the dollar and US government bonds. By the end of July, India's gold reserves amounted to $57.6 billion, which marked a 30-percent increase from a year earlier. New Delhi also repatriated 100 tons of gold that had been stored in British banks since the 1990s.

Singapore, the Philippines and other countries of the region have been increasing their gold reserves as well.

Demand is driving up the price. Gold prices have reached a record high again. On Monday, August 19, stock exchange prices on gold exceeded the $2,550 mark per troy ounce for the first time in history.

USA's default will destroy the debt market

No one wants to find themselves in a situation where their assets are frozen or confiscated. Political instability inside the US can only add more fuel to the fire. The country is at risk of a split following the November elections and a technical default.

The US may raise the debt ceiling in early January, right at the height of the transition of power. Anything may happen in case of rigged elections, including a default.

Central banks around the world are trying to soften the consequences of the looming US debt crisis in advance by buying one asset that remains solid forever — gold.

Details

Gold is a chemical element; it has symbol Au (from Latin aurum) and atomic number 79. It is one of the least reactive chemical elements, being the second-lowest in the reactivity series. It is solid under standard conditions. Gold is resistant to most acids, though it does dissolve in aqua regia (a mixture of nitric acid and hydrochloric acid), forming a soluble tetrachloroaurate anion. Gold is insoluble in nitric acid alone, which dissolves silver and base metals, a property long used to refine gold and confirm the presence of gold in metallic substances, giving rise to the term 'acid test'. Gold is a precious metal that has been used for coinage, jewelry, and other works of art throughout recorded history.