Jan Nieuwenhuijs: The West Is Losing Control Over the Gold Price

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Because customs data lags a few months, and the World Gold Council’s supply and demand data is published quarterly, we will cover the global market until June 2023 in this article. We will examine how gold is becoming less sensitive to real rates, and how London is losing its gold pricing power.
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The most logical explanation for gold’s recent behavior is a combination of surreptitious buying by central banks from emerging markets, and strong private demand in Turkey and China. It’s possible the WGC’s estimates of covert central bank buying are too low, given these estimates were falling during the price spike at the end of 2022 and the beginning of 2023.

As some of you might have noticed the US dollar gold price has been declining in the last months of the period of our investigation, and London was still a net exporter. Perhaps the West will regain control over the price again. I don’t expect the gold price to fall to levels previously suggested by the rates model though.

Central bank buying is likely to stay strong. “We still believe that the official sector will remain a sizeable bullion buyer for the foreseeable future …, as factors that encouraged reserve managers to add gold reserves in recent years are expected to persist,” Metals Focus wrote this August.

We will have to wait and see if the East is able to further push up the price of gold and weaken the West’s control over the price. If so, gold will become less of a dollar derivative, and take more center stage in the international monetary system. Any developments will be reported on these pages accordingly.

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foolsgold said:

How high would the POG need to be so it could be used as a reserve currency?

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foolsgold said:

How high would the POG need to be so it could be used as a reserve currency?

Click to expand...