Any Forex trader worth his or her salt will tell you that gold and the USD are inversely correlated. That means that traders and investors buy gold when the USD looks weak (thus driving the gold’s price up) and vice versa.
Well, now the World Gold Council has published numbers that show some of the world’s central banks bought 145.5 tons of gold during the year’s first financial quarter. The organization added that it expects demand to stay up for the next 7 months at least. This is not your usual gold/USD scenario, as the American currency has performed well so far in the year. It’s about countries trying to de-dollarize their central banks so they can limit their dependence on the American economy.
The gold acquisitions by central banks are the highest in six years. The operation signals that they’re getting rid of their USD reserves in favor of gold. According to the same organization, on a report published on last Thursday, the global gold reserves are higher by 68% compared with the previous year.
Russia is the largest gold buyer. It’s also decreasing its US Treasury holdings. Both moves show that the Russian central bank is moving towards de-dollarization. Alistair Hewitt said,
“We’ve seen a continuation of the strong demand from central banks,” in the words of the World Gold Council’s head of market intelligence,”
Alistair continued,
“We’re expecting another good year for central bank purchases, although I’ll be pleasantly surprised if they are to match the level seen in 2018.”
Gold in central banks is not a novel idea. In the past, currencies were backed by gold, but that’s beside the point. Central banks all over the world have been complementing their reserves with gold for some time now. Only last year, from January to October, they bought 351.5 tons of gold, which was 17% more than the same period in the previous year.
During 2019’s Q1, Kazakhstan and Turkey (which are frequent consumers) bought gold as expected. But also Ecuador joined the club and included it on its reserves for the first time in five years. Colombia and Qatar also bought significant quantities of the yellow metal.
The rationale behind that move is to be less dependent on the USD, which those countries are because they hold less gold reserves than, say, Western European central banks. Not to mention that Western Europe is in the Eurozone which is the only currency in the world that can rival the USD as a wealth storage resource.
Could Bitcoin become the next reserve asset?
Russia, China, Turkey, and many other countries trying to gain independence from the USD is not a new development. It’s been on the works for some time now, and it’s slowly increasing in speed. Choosing gold instead of USD for reserves is merely an example.
So gold is having a bullish run. It’s usually a safe haven asset that investors and shrewd ordinary people buy when things get hard. But we’ve also seen Venezuela being denied its 1.2 billion in gold.
When it comes to wealth storage, Bitcoin is even better than gold. And, unlike gold, nobody (governments and international institutions included) can take it away from you. It’s immune to international economic sanctions and boycotts.
The rumor is floating around that Russia is buying Bitcoin already for that purpose. Which is just not right. If an institutional player of that caliber were in the market, we would have seen dramatic increases in trade volume and prices. When an elephant comes into a room, you notice it. You may not talk about it, but you notice it for sure.
But the future could be like that. Russia and other countries looking to de-dollarize could turn to Bitcoin or other digital assets to store their wealth in reserve.
As Bitcoin grows in value but lowers in volatility, it would be only natural for the world’s central banks to use it as a hoarding resource.
Disclaimer: The presented information is subjected to market condition and may include the very own opinion of the author. Please do your ‘very own’ market research before making any investment in cryptocurrencies. Neither the writer nor the publication (TronWeekly.com) holds any responsibility for your financial loss.