American analysts have finally understood why Russia and China are buying more and more gold: the goal of Moscow and Beijing is to change the rules in the global economy and put an end to the hegemony of the dollar.
According to data from the World Gold Council (WGC), last year central banks around the world bought 651 tonnes of gold, or 74% more than in 2017 – the highest since 1971, when the US abandoned the gold standard. Half of this volume was bought by the Russian Central Bank.
Today the Russian Central Bank has 2,112 tons of gold worth $87 billion. In the last ten years, the share of gold in Russian reserves has increased from 3.5% to 18.6%, while investments in US Treasury bonds and dollars have reached their lowest point. As a result, Russia currently ranks fifth in the list of countries with the highest gold reserves.
The second largest gold buyer belongs to China, which has 1,853 tons worth of gold worth $76 billion, and has significantly increased its gold purchases at the end of 2018. Another major buyer of gold is India, whose reserves of this precious metal grew last year by 42 tons.
In addition, global political and economic uncertainty has led central banks to diversify their reserves and increase investments in safe and liquid assets, the WGC said.
“Gold is the strongest currency in the world, subject only to minimal natural inflation, and is a good insurance against fluctuations in the dollar. Large gold reserves strengthen investor confidence in the Russian ruble,” the analyst Ronald-Peter Stoferle told the German-language newspaper Neue Zurcher Zeitung.
Gold is gaining more and more importance as insurance against the potential US default. According to financial analyst Bill Holter, Russia and China understand that it will be very difficult for the US to repay its debts and, after all, buying US Treasury bonds does not make sense.
In this situation, “How do they [Russia and China] defend themselves? They are buying gold. Gold and silver are direct competitors of any paper money,” he explained.
Analysts are sure that, in the current situation, the purchase of precious metals is the best strategy for both central banks and private investors.
“In the US public debt market, the biggest bubble in history is being formed, gold and silver are very undervalued, so it’s now about betting against public debt and buying strong assets like gold and silver. Nothing can prevent the explosive growth of gold prices that we will observe in the future,” explained broker Gregory Mannarino.
The largest investment bankers support this forecast. According to Goldman Sachs, the uncontrolled issuance of dollars increasingly threatens the stability of the global economy and will lead to rising real asset prices, primarily gold.
One more factor that will contribute to the dramatic increase in gold prices is the reduction of its production. According to Newmont Goldcorp experts, gold production will begin to decline in the next few years, reaching the level of the early twenty-first century by 2022. Some scientists warn that gold reserves on Earth will be depleted by 2034.
Bill Holter is sure that, on the eve of the collapse of the debt markets, Russia and China will buy as much gold as possible.
“The ambitious plan of Moscow and China aims to deplete the West’s gold reserves. When problems arise with the supply of this metal, Russia and China will succeed in overthrowing US Treasury and US dollar hegemony as reserve currency and establishing their rules in the global economy,” Holter concluded.