On March 7, there is new news that the European Union and the United States are considering banning the import of Russian crude oil and the situation between Russia and Ukraine continues to be tense, the global market began to hedge on a large scale, oil prices rose sharply to $130 per barrel, spot gold is directly jumped once pierced through the $2,000 / ounce mark, the IMF said in a statement issued on March 5 that the current Russian-Ukrainian conflict situation is still in rapid tensions, full of uncertainty about the global economic outlook.
The World Gold Council's report released on March 2 also believes that as the situation in Russia and Ukraine continues to escalate, it has aroused global concern, and historical data shows that gold tends to be able to react positively in tail events related to major geopolitical crises, and although gold prices will fluctuate significantly, they tend to remain high for months after the event.
At the same time, Wall Street is worried that the specter of American stagflation in the 1970s will return. According to the stress test model provided by the MSCI risk management team, if there is stagflation, then the diversified portfolio of US stocks and US Treasuries may eventually lose 13%, and the CEO of Barrick Gold also said that if the Russian-Ukrainian conflict continues, the European and American financial markets will face the "risk of collapse", which is beneficial to gold, and the Fed's interest rate hike in March is not expected to be enough to push the real interest rate of US Bonds to positive.
In the long run, global central bank demand for gold, as the main buyer of gold, will continue to be supported by external factors such as supply chain shortages, the COVID-19 pandemic, high inflation, geostrategic risks and corrections in highly valued assets, which will be beneficial to gold, because the allocation of gold can be used as a risk hedging tool.
The world's largest solid gold brick weighs 220 kilograms and is housed in a gold museum in China
The World Gold Council survey shows that 21% of global central banks will continue to buy gold in 2022, remaining a key component of international reserves. The data shows that global central banks bought a large amount of 463 tons of gold in 2021, an increase of 82%, 39% higher than the average in the last five years, and in the five years to January, the global central bank purchased as high as 2285 tons, setting a record for the fastest purchase rate since the decoupling of the dollar from gold.
Global central banks are buying gold faster
For example, in the 18 months to March 1, 22 central banks in eastern Europe bought the largest amount of gold since the pound crisis, according to data released by the IMI International Commissioner on March 6, and Russia and Turkey have been the main buyers of gold among global central banks for many years, and have regarded gold as an important monetary asset and a shield against financial restrictions in Europe and the United States, a force independent of the power of the us dollar.
As Keynes, the father of macroeconomics, said, there is no better alternative to gold as a strategic reserve that markets need in an emergency. For example, the Russian Ministry of Finance suggested that Russian residents can choose to invest in gold in the current unstable situation, and gold can be used instead of the US dollar.
As of February 4, Russia's gold reserves were about 2,300 tons
Data released by the World Gold Council on March 3 showed that gold was becoming a sought-after safe-haven asset, with global gold-backed ETFs inflows of 46.3t dominated by Asian and North American funds in January, the highest level in 10 months, while the Chinese market accounted for more than 60% of total asian gold-backed ETF inflows. The "2022 China Gold Market Outlook Report" released by the association said that in the portfolio of Chinese, gold may play an important strategic role and be of great significance in wealth preservation, and China's gold imports and consumption are expected to maintain its strong momentum.
According to Swiss and Dubai customs data quoted by the US financial website Zerohedge on March 2, with the recovery of China, the world's largest gold consumption market, the gold export volume of Switzerland and Dubai to the Chinese market has grown to the highest level in four years in the 12 months until March 1, of which the most recent batch of about 198 tons of gold has arrived in the Chinese market from Europe and the United States between January and February. China imported up to 818 tonnes of gold in 2021 (significantly higher than 128 tonnes in 2020, see figure below for details).
These market statistics show that at least 1,016 tonnes of gold have arrived in China since 2021. However, gold imported from Switzerland and Dubai in the Chinese market is not always declared every time, but according to the US media analysis, since 2000, more than 6,700 tons of gold have entered the country through the overseas market alone. Because, whether it is importing, mining or recycling gold, most of the gold entering China passes through the Shanghai Gold Exchange (SGE), because SGE is the core of China's gold market, so the analysis of SGE gold extraction will provide a window of observation for the real gold scale and demand in China (for specific data details, please refer to the chart below).
These reflect the fact that smart global central banks have a clear understanding of the true value of currencies, because when the risk of regional conflict increases, stagflation and inflationary pressures and uncertainties increase, then gold will regain its financial properties and is no longer a marginal asset, which also makes the way gold flows reverse, more likely as a strategic resource to the central banks of non-DOLLAR countries and emerging market investors.
Wall Street veteran and veteran economist Jim Rickards further explained that the development of digital currencies or digital gold wallets backed by gold or local currencies is expected to weaken the dominance and share of use of the using dollar and end faster than most people expect. Because when the United States has launched a bottomless printing and water release strategy since 2020, the Fed may lose control of inflation, which also makes foreign central banks start to sell dollar-denominated assets to replace non-dollar assets such as gold in search of diversified international reserves (for specific data details, please refer to the chart below), as shown in the following data chart provided by the IMF and the World Gold Council, the current trend of global central bank de-debonding continues.
According to the latest international capital flows report released by the US Treasury Department on February 16, at least 20 major US Treasury holders, including China and Japan, sold US Treasuries sharply in December 2021, and it was the largest outflow of US Treasuries since May last year (please refer to the chart below for details), and the trend of selling US Treasuries has not ended.
Because there will be a two-month delay in the official US Treasury data, with the ten-year US Treasury yield oscillating in the range of 1.8% to 2.03% since January 2022, the first two months of this year are expected to see more central banks sell US Treasuries, traders firmly believe that US Treasury yields will climb to 3%, bond yields are inversely proportional to prices, rising yields represent a sell-off greater than purchases, and the latest news is feeding back this trend.
According to the latest views of some economists quoted by the US Quartz website, although the Fed chairman testified before the Congressional Financial Committee on March 2 that it is appropriate to raise interest rates now, it still cannot make the real yield of the US Treasury into a positive data value, and as the real yield of the US Treasury is in the negative range for a long time (after deducting inflation), it also means that the high inflation in the past 40 years has hedged the interest cost of the United States, and there is a possibility of hidden default, which also makes it including Japan, China, the United Kingdom, and Russia U.S. Treasury investors at the global central bank level, including Turkey and Germany, are likely to continue to sell U.S. Treasuries sharply in 2022, and there is also a possibility of zeroing out U.S. Treasuries if inflation risks increase and the United States abuses SWIFT sanctions.
Because, now the macro environment of the United States is to monetize its trillions of debt deficits, and the BWC Chinese network financial research team has also stressed on different occasions that in any major financial market crisis, it is necessary to have a cool head, which is also the beginning of a new era, and gold may once again return to supporting currencies or special drawing rights. Even the Dutch central bank hinted on its website that gold can once again serve as the basis for building a financial and monetary system, and seems to be in favor of the gold standard, which is even more unexpected by the market. (End)