Central banks are buying the commodity as a hedge against possible sanctions, a market expert has suggested
© Getty Images / Matthias Kulka
Central banks around the world are shifting away from the US dollar and turning their attention to gold as a safe haven asset, the chairman of Rockefeller International, Ruchir Sharma, has said.
Prices for the commodity have surged 20% in the past six months, with demand coming not from “the usual suspects” such as large and small investors “seeking a hedge against inflation and low real interest rates,” but from “heavy buyers” like central banks, Sharma wrote in the Financial Times on Sunday.
According to the investment expert, regulators are sharply reducing their dollar holdings and seeking a safe alternative. Central banks now account for a record 33% of monthly global demand for gold and are ramping up gold-buying more than at any time since data began in 1950, Sharma added.
“This buying boom has helped push the price of gold to near-record levels and more than 50% higher than what models based on real interest rates would suggest,” he explained, adding that “clearly, something new is driving gold prices.”
Sharma pointed out that nine of the top ten central bank buyers are in the “developing world,” including Russia, India, and China.
“Not coincidentally, these three countries are in talks with Brazil and South Africa about creating a new currency to challenge the dollar,” Sharma noted.
He attributed the rush for the precious metal to increasing sanctions pressure exerted by the US and its allies, with as many as 30% of nations facing international penalties – up from 10% in the early 1990s.
“Thus, the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar,” Sharma argued.
Some countries began to seek alternatives after seeing Russian assets frozen abroad and the country cut off from the SWIFT global financial messaging system.
“Suddenly, it was clear that any nation could be a target,” Sharma wrote.
According to the expert, the US saw sanctions as a “cost-free way to fight Russia,” but in reality the weaponization of the dollar has come at a cost for Washington as even allies such as Thailand and the Philippines have started to look for alternatives.
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