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

[pmbug]

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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.

The West Is Losing Control Over the Gold Price

An important change has unfolded in the global gold market. The East has been driving up the gold price, breaking the West’s long standing pricing power.

www.gainesvillecoins.com

I skipped the details of his analysis and quoted his conclusion. You can click the link for the details if you like.

 

[foolsgold]

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

 

[pmbug]

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

According to the IMF, Dollars accounted for ~59% of all allocated global foreign exchange reserves in Q1 2023 with a total value of 6.58 trillion dollars:

https://data.imf.org/?sk=e6a5f467-c14b-4aa8-9f6d-5a09ec4e62a4

According to the WGC total global gold reserves sat around 31,669.04 Tonnes in Q2 2023:

Gold Reserves by Country | World Gold Council

Gold reserves by country data compiled from IMF IFS statistics. Explore reported central bank purchases, sales and total world gold reserves.

www.gold.org

If I did my math right, gold would have to be $6,462.49/troy ounce to make Q2 2023 global gold reserves have the same value as Q1 2023 global dollar reserves.

 

[Casey Jones]

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

The one has nothing to do with the other.

Gold, or another elemental metal (silver, etc) will be used as a reserve currency if/when the major economic players in the developed world, decide they cannot trust any of the preeminent world currencies.

The dollar was the world's reserve currency when it was backed by gold. Before the dollar, there was the pound sterling, backed by precious metals. And, of course, by an empire the sun never set on.

Until it did. Political power, international strength, seems to play a part in that status.

But now that ALL the currencies of the world are either openly fiat, or backed by opaque governments that are not trusted (China, for example) there may well be a default, for a time, to use of a measured amount of PMs as a currency or backstop.

Until another prosperous nation arises that appears to be trustworthy, with sound money.

Or, until a thousand years of benighted darkness passes...a second Medieval period. That appears the more-likely, now.

If that happens, the world will shrink. International trade will be only a memory; and then only a legend. Piracy and ship founderings will be the norm; and air travel, the stuff of which we consider the Miracles of Jesus.