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Macroscope
Opinion
Anthony Rowley
Anthony Rowley

Macroscope | Move over cryptocurrency, gold could have the last laugh this year

  • The central banks of China and Russia are among those making huge purchases of gold amid geopolitical tensions
  • The two countries are almost certainly ‘weaponising’ the precious metal, which will only push up its price

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A worker plunges a gold ingot into a cooling bath at the Uralelectromed Copper Refinery, operated by Ural Mining and Metallurgical Company, in Verkhnyaya Pyshma, Russia, on July 30, 2020. Central banks are estimated to have bought more gold in the third quarter of 2022 than ever before. Photo: Bloomberg
Anthony Rowley

There has been considerable excitement in the gold market lately with the price touching US$1,900 an ounce last year and appearing likely to breach US$2,000 before long. But what is happening below the radar with the huge build-up of central bank gold holdings is of greater interest.

The People’s Bank of China and Russia’s central bank have been buying heavily, and while this may appear to be little more than shrewd, given that inflation is set to continue rising (even if at a slowing pace), these purchases have wider monetary and strategic significance.
They signify further challenges to the global financial and monetary order in 2023 as China and Russia seek, for their own separate reasons, to counter what has in effect become a tyranny of dollar domination. And they point to growing distrust and geopolitical tension between major economic powers.
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Central banks as a whole are estimated to have bought more gold (399 tonnes) in the third quarter of 2022 than ever before, according to the World Gold Council, a London-based organisation backed by gold mining companies.

Some see this surge in central bank buying as a return to global monetary stability or even a restoration of a quasi gold standard. Others see it as a retrograde step at a time when (they believe) central banks should be promoting cryptocurrency assets instead as the wave of the future.

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The reality is that developments in the gold market are a brutal reminder of the damage being done to the global financial order by the current situation of warring states – not just the Ukraine war embroiling Russia but also the trade and technology wars unleashed by the US on China.
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