Golden rush

Why yellow metal is actively bought up all over the world

According to the international report by the World Gold Council, global official gold reserves increased by 228 tonnes in Q1 2024, which allowed breaking the previous Q1 record that had been in place since 2013. Compared with the average over the past five years, this figure has soared by a record 68 percent. The high demand for the yellow metal from such major players as China, Türkiye, India and other countries of the Global South has determined the steady growth in gold prices. What is the reason for such close attention to the precious metal from different countries around the world, and how does geopolitics affect the price of gold?    

Chasing the yellow devil

According to statistics, interest in the chemical element with atomic number 79 has been steadily growing since the spring of 2022, following the escalation of the confrontation between supporters of the unipolar and multipolar world order, as well as the Ukrainian conflict. 
In 2022, central banks purchased 1,082 tonnes of gold, and 1,037 tonnes last year. Net gold purchases have become one of the main trends of this period — countries practically do not sell the yellow metal and only fill up their treasuries with gold. 
China, Türkiye and India are among the leaders of the ten countries that have reported increased gold reserves in the first quarter of 2024.

No faith in US dollar

There are two fundamental reasons for the growing interest of central banks in bolstering gold reserves: distrust in the US dollar-based global monetary system resulting in the rapid de-dollarisation of the world economy, and the desire to make oneself secure in case the conflict of interests between the blocs of powers persists. 
The US national debt has increased by 7,300 percent since President Richard Nixon de-pegged the US dollar from the gold standard in 1971 and launched the fiat monetary system. During the Cold War years and in the era of the sole dominance of the United States on the world stage, most national economies somehow found themselves dependent on the perturbations of the US financial system. 

However, the geopolitical crisis of the beginning of this decade has made it possible to break this vicious circle, thus setting a task before the world powers, not related to the collective West, of replacing the US dollar reserve. The natural way out of the situation is to turn to the precious yellow metal.

The trend towards replacing the US dollar as the world’s reserve currency has been unfolding for more than one year. Since 2015, countries that advocate the creation of a multipolar world and the rejection of the US hegemony in financial and political matters have begun to ramp up the share of gold in their reserves, while getting rid of green banknotes with US presidents.

From forecast to reality

De-dollarisation and a surge in the share of gold in the national reserves of countries are also fuelled by concerns of a number of states over foreign assets to which the West can gain access. The case of nearly $300 billion worth of Russian forex reserves frozen by Western countries after the start of the special military operation, and the gradual progress of the EU and G7 towards the final confiscation and seizure of Russia’s funds have convinced China, Türkiye, India and other countries that, firstly, they need a more solid means for storing reserves than securities and currency, and secondly, it is safer to keep all assets in the home country or at least in reliable and friendly states. 
In May, the mushroom growth in the value of monetary gold continued as a key sign of the US financial instability and increased distrust in the US currency.
For comparison: in 2023, the cost of one troy ounce ranged from $1,819 to $2,146, but the growth increased in the spring and as early as on May 20th, it overcame the historical mark of $2,400. At the same time, June futures — fixed prices for the agreed time in the future — are already trading at around $2,447 per ounce, while the prospects are its value may reach $2,500 this year. 
De-dollarisation, caused by uncertainty about the future of the US dollar hegemony, is a natural process gaining momentum. In addition, geopolitical instability is an important factor in the accumulation of gold reserves. The states and their national banks cannot predict what the ongoing global confrontation will eventually lead to. It may happen that, having exhausted its resources and realised the inevitable defeat, the West will retreat and try to take its place in a new multipolar system. Yet, based on the experience of the last 500 years, as well as taking into account loud statements and actions of Western leaders, it can be assumed that they intend to fight for the old world order and their dominance to the end, which naturally scales up the risks of both a series of destructive local conflicts and the outbreak of world war.

What is Poland preparing for?

Over the past few years, Belarus’ western neighbour has been consistently among the countries taking the lead in gold acquisition, occasionally almost reaching the level of the People’s Republic of China in quarterly terms. Let us look at the dynamics of last year — Warsaw finished Q1 2023 with 228.7 tonnes of gold, the National Bank of Poland brought this figure to 333.7 tonnes over the next two quarters, and by the end of 2023 it already had 358.7 tonnes of gold in its piggy bank.
Adam Glapiński, President of the National Bank of Poland, stated at a press conference in November that according to the approved plan, Warsaw strived to keep 20 percent of its reserves in gold, having 11.2 percent at the end of 2023. When asked why such large-scale purchases were needed, Glapiński answered evasively, hinting at the turbulent time and mentioning the fact that rating agencies and international investors were looking at how many gold reserves the National Bank had. 
All this may indicate that the hastily created gold reserve, which, according to forecasts, is expected to reach 600 tonnes, is an insurance policy for Poland in case it unleashes a military conflict. 
The economy today is inextricably linked with politics, and since the latter is stormy, the former also has a hard time. The situation is additionally complicated by ‘black swans’, which over the past four years have almost become the norm of life and regularly destroy all forecasts. 

By Anton Popov