How gold has become a hedge against a ‘weaponised’ US dollar for countries like China, Russia and others

Amid an escalating trade war, both Beijing and Moscow have diversified away from US dollar holdings to reduce Washington’s economic leverage and minimise future exposure to tariffs and sanctions. For them, and others, gold remains a safe haven

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Uncertainty caused by the trade war has made gold popular among central banks again. Photo: Shutterstock

Published: 11:00pm, 4 Sep 2019Updated: 10:58pm, 10 Dec 2019

The chaos of the US-China trade war has left markets reeling as tariffs and Trumpian tweet storms beat down valuations and open the door to a recession.

The yuan/US dollar relationship spiked to 7.16 on September 2. Central banks in the US, Thailand, India and New Zealand have cut their rates in expectation of further fallout, and analysts in Hong Kong have wrung their hands over concerns of capital flight – a risk exacerbated by the ongoing local political uncertainty.

In the midst of this chaos, a familiar haven asset has shot back into the limelight. The recent spike in gold prices to over US$1,500 per troy ounce – the highest since a peak of almost US$1,900 in 2011 – is partially a response to the heightened enmity between the US and China, but this is far from the only reason gold has been driven up in the past year.

Since the 2008 global financial crisis, central banks worldwide have returned to buying bullion – physical gold. Central banks around the world bought a total of 651.5 tonnes of gold in 2018 – the largest amount by volume since 1967.

Polish Prime Minister Mateusz Morawiecki speaks to journalists on February 18. The National Bank of Poland was one of the biggest buyers of gold in the first half of 2019. Photo: EPA-EFE

And the first half of 2019 saw a flurry of activity as central bank gold purchases rocketed to record levels. Ecuador added to its reserves for the first time since 2014. Turkey and Kazakhstan continued to build their reserves, alongside sizeable purchases by Qatar and Colombia.

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