The price of gold is rising largely due to significant central bank demand, particularly from China. The US and the EU’s seizure of Russia’s dollar and euro reserves sent a signal to other central banks that foreign currency reserves are politically vulnerable. In response, central banks such as those in China, Turkey and the Gulf states, have started reducing their dollar opting to buy gold instead.
“An additional factor is that the world is swimming in government debt. Despite positive economic growth, leading markets including the US, UK the EU, Japan, and China are all running very large fiscal deficits. With reductions in spending looking unlikely, markets have little faith that fiat currencies and long-dated government bonds will yield positive returns. For those worried about this, gold has always been the asset of choice.
“Crypto is also gaining popularity for this reason, but for now central banks have little appetite for crypto – digital ledgers don’t offer the same comfort as shiny gold sitting in your vaults.
“Gold rising because people are worried about inflation, or have lost faith in paper money, is not a good thing. However, there will be no tangible impact on the cost of living other than gold jewellery prices.
“This ‘gold rush’ may continue for as long as central banks and governments encourage or poorly manage inflation
By Jeff Brummette, Chief Investment Officer at independent wealth manager Oakglen Wealth.
