Global central banks on a cumulative basis have never sold gold between 2010 and 2022
The US dollar has been the de-facto world reserve currency for more than half a century, with no questions asked about the greenback’s exceptionalism. However, the Ukraine war potentially begets an inflection point wherein nations are endeavoring for a multipolar world. Countries are now increasingly finding an alternative to settle trades in other currencies.
Sanctioned nations have long been trying to reduce their dependence on the US dollar, but the unsanctioned ones are also working towards a non-dollar trade. As a case in point, oil economies are looking forward to trading their produce in Yuan. India is working on Rupee-trade settlements with a host of countries.
The global reserve currency is characterised by steady supply, liquidity, and absence of capital controls. However, the freezing of Russia’s central bank assets by the US political regime has dented the credentials of the greenback as a reserve currency. Needless to mention, the recent US sovereign downgrade by Fitch, citing steady deterioration in fiscal and debt situation over the last 2 decades. US Treasury Secretary disagrees with Fitch’s downgrade, calling it arbitrary and based on outdated data.
However, we beg to differ and think that a downgrade was long overdue given the $13 trillion rise in US debt during Presidents Biden and Trump eras and no impression of fiscal discipline coming out of Washington, characterised by the recent bipartisan agreement to suspend the debt limit until January 2025. We think that Fitch’s action is a catch-up with S&P’s downgrade in 2011 and endorses the structural issues with the US debt situation, which is projected to worsen further in the coming years.
Having said that, dollar’s reserve status is still intact given that no other fiat currency cannot compete with it in terms of liquidity. So, de-dollarisation is still at an embryonic stage, but there is a strong resolve among the non-western world to tread on this path given the increasing use of the US dollar by Washington as a weapon to sanction its adversaries (read political and economic rivals). Geopolitical experts see the US manifesting the syndrome of the Thucydides Trap, which will tilt it towards the blatant use of sanctions and other financial warfare.
After the erstwhile US President Trump’s trade war and the pandemic, the world is staring at fragmented globalisation and the formation of blocs, which necessitates the need for an alternative to the world reserve currency. This is an evolving landscape, there could be a lot of moving parts and an array of possibilities, including currency diversification, bilateral/multilateral currency swap, formation of regional payment systems, and settlement mechanisms.
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Amid the varied possibilities, we reckon that gold will emerge as a certain beneficiary. Early signs of de-dollarisation are evident when seen through the prism of currency diversification. This can be manifested in a falling share of the greenback in Global FX reserves. Global central banks have been diversifying their reserves from dollars and will continue to do so by building assets in gold and other currencies. This can also be corroborated by persistent purchases of gold by the central banks, wherein they constitute 25 per cent of the global gold demand.
Central banks, particularly the ones in emerging markets have added 6,815 tons of gold to their reserves in the last 12 years. Global central banks on a cumulative basis have never sold gold between 2010 and 2022. Central bank surveys convey that appetite for gold will continue given its credentials as a store of value, a liquid global asset, and a hedge in times of crisis. This tells us that gold as an asset class is under-rated and undervalued, bearing the potential of a long way to run on the upside.
Written by Hitesh Jain for Business Line ~ August 22, 2023
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Please allow me to introduce myself; I am Jeffrey Bennett, President of Kettle Moraine, Ltd., the parent of Sierra Madre Precious Metals.
I have been married for 53 years with two children and four grand-children, a veteran of Viet Nam, student of history (both American and film), and was host for fifteen years of Perspectives on America on the alternative airwaves, covering such subjects as, health and wellness, news, political satire, education and editorial commentary on current events through the teaching of history, and Protecting Your Wealth. In early 2018, I took a several month hiatus to complete some family business but returned to airwaves April 17, 2018).
At the age of ten, I sat in a bank-vault in the Citizens Bank of Mukwanago, Wisconsin with my grandfather going through bags of old American Peace dollars, hand-selecting each coin as dated rolls of 20 coins were carefully put together and rolled. Learning of the history of these beautiful pieces of Americana, I asked my grand-father, "Why are we doing this?" to which he replied, "Because someday they are going to do the same thing with the silver in our money that, that (S.O.B.) Roosevelt did with gold in 1933." It took only six-years for his prediction to come to pass at the hands of a disciple of Roosevelt's... and what will a Federal Reserve 'dollar' purchase today - and what will that old 90% Silver Peace Dollar purchase?
Although at the age of ten, there was little understanding of the meaning of it all, over the next half-century I became well-versed on the subject matter. During this summer of my education, I began to purchase silver coins as a collector and some small, international gold coins two years later - not an easy feat in the shadow of the Roosevelt confiscatory policies of 1933. Although those policies remained in effect until the mid-1970's, it was not until 1991 that I found that one could make a living providing precious metals and collectible, historic numismatic coins to a willing and concerned clientele.
It was also during that year, that I began a relationship with one of the first Trust companies to give the public access to gold and silver as part of an Individual Retirement Account (IRA) - and Kettle Moraine, Ltd., founded in 1995, but have ceased providing service due the the intense change-over of the provider.
In November 2011, after a 15 month broadcast on another network, I returned to the airwaves with my then revamped program, Life, Liberty & All That Jazz, and for over 28 years, I have been proud to serve the family of listeners of my numerous broadcast programs for physically-held precious metals for investors and collectors alike. On March 23, 2020 I launched my brand new - appropriately named program, The Edge of Darkness on the Republic Broadcasting Network, and thus continue to remain available to our long time clients and their families. Ah yes - find out what "inter-generational" wealth provision has done for our clients over the past three decades.
Don't buy the sizzle of that steak until you understand the cost! In other words, don't buy the bull being dispensed by the 'rare coin' pitchmen until you understand the full story. We, at Sierra Madre Precious Metals, will be proud to serve your needs.
