Gold prices recently reached new highs, surpassing $2,300, a new record high. The surge in gold prices has been driven by the world’s major central banks and their quest to stockpile gold as their latest obsession.
Banks typically buy gold to diversify their assets and protect themselves against market volatility, but why are banks around the world stockpiling gold like there is no tomorrow?
Also read: US economy notes significant rise in gold, silver and copper prices
Reserve banks around the world are relentlessly buying gold: what’s happening?
Gold is now entering a new price milestone. The yellow metal is currently trading at $2,386 per ounce, with gold futures trading at $2,374. Gold has been considered one of the best performing assets this year, leading global economies to make active purchases by painting their reserves yellow with gold.
However, according to Kobeissi’s letter on X, these “obsessive” purchases of the yellow metal by banks signal a potential loss of confidence in their monetary systems and methods.
Talking about this in detail, the article described the outlandish gold purchases that countries have made so far. China led the gold stockpiling spree by adding 290 metric tons to its reserves. During the years 2022 and 2023, the World Bank collectively purchased 1,037 tonnes of gold respectively.
The handle then linked the purchases to the growing momentum of the currency crisis, adding that such large gold purchases could signal potential monetary repression that threatens countries due to worsening geopolitical and economic developments.
“China’s central bank has increased its gold reserves for 17 consecutive months. In 2022 and 2023, global central banks purchased 1,081 and 1,037 tonnes of gold, respectively. Before 2022, there has never been a year in history with more than 1,000 tonnes of gold purchased by the central bank. Have central banks lost confidence in their own currencies?
Does an unsustainable fiscal path await the United States?
The general sentiment regarding the dollar and gold suggests a clear anomaly. Rising gold indicators can destabilize the value of the US dollar, turning user sentiment into support and using gold as a hedge rather than promoting the use of the US dollar.
Similarly, Kobeissi’s letter on X highlighted another serious economic development in which the US debt-to-GDP ratio is poised to increase over the next three years.
Also Read: Silver Trends Amid Rising Gold Prices: Why Is Silver Rising?
Dubbed an “unsustainable fiscal path,” the looming development could pose serious challenges for the United States, even adding pressure to the dollar’s glaring prestige.
“Over the past two decades, the US debt-to-GDP ratio and gold have been directly correlated. As the level of US debt to GDP increased, so did gold prices. Since the end of 2023, US debt has increased at the historic rate of $1 trillion every 100 days. At the same time, gold returned around 20%, making it one of the best performing assets of the year. The CBO estimates that the US debt-to-GDP ratio will reach a new record within 3 years. We are on an unsustainable fiscal path.
reference: watcher.guru