For the last 10 years, central banks have been on a gold-buying spree. At least some of them have.
On net, central banks globally added 193.3 tons of gold during the first half of 2018, according to World Gold Council data. That represents an 8% increase over 2017. The last time we saw this kind of central bank buying was in the 1950s, but as a report published by Forbes points out, the motivations are much different now than they were then.
A Russian lawmaker has suggested his country should develop a gold-backed cryptocurrency for payment of arms exports and other goods as a way to circumvent Western sanctions and limit his country’s dependence on the dollar-based global banking system.
Vladimir Gutenev serves as first deputy head of the economic policy committee at the State Duma – the Russian Parliament’s lower chamber. He suggested Russia should develop a gold-backed cryptocurrency as he called for a suspension of treaties with the US, including the non-proliferation of missile technologies agreement.
Over the last couple of years, we’ve been reporting on efforts to remove the US dollar from its throne as the world reserve currency. We’ve primarily seen moves toward de-dollarization from countries like China and Russia, and other nations within their orbits. It’s easy for Americans to dismiss efforts to undermine the dollar as desperate moves by their enemies that will never gain any kind of international traction. But now we’re beginning to hear the same de-dollarization rhetoric from American allies.
Earlier this week, German foreign minister Heiko Maas called for the creation of a new payments system independent of the United States.
Russia has added to its gold reserves every month since March 2015. That trend didn’t end in July. In fact, the Russians ramped up their gold purchases even more last month in the face of US economic sanctions.
The Russian central bank added 26.1 tons of gold to its hoard in July, according to International Monetary Fund data reported by Bloomberg. It was the largest increase in Russian gold holdings since last November.
The Russians are dumping US Treasuries and buying gold.
As we reported earlier this week, the three largest holders of US Treasuries are not in a buying mood. In fact, they’re selling. The Japanese disposed of $12.3 billion in US debt. Meanwhile, Chinese Treasury holdings fell by $5.8 billion. The Federal Reserve has shed about $70 billion in US bonds since launching its tightening program last fall. So far, individual and institutional investors have picked up the slack.
Lost in the latest data about Treasury holdings was the fact that Russia dumped nearly half of its US debt in April. But even as it divests itself from US bonds, Russia’s total reserves have grown as the country adds to its gold holdings.
The Japanese and Chinese aren’t buying US Treasuries. In fact, both countries reduced their holdings in April.
According to the US Treasury Department, the Japanese disposed of $12.3 billion in US debt. Meanwhile, Chinese Treasury holdings fell by $5.8 billion.
This could be a troubling development for the US government as it scrambles to fund its massive deficits and ever-growing debt.
Last week, we explained how economic sanctions on Iran could boost the price of gold as Iranians turn to the yellow metal as a way to skirt restrictions. In a recent article published by the Daily Reckoning, financial expert Jim Rickards put this in a broader context. He described an evolving “axis of gold” as a number of countries, including China, Russia, Turkey and Iran increasingly use physical metal to create an offensive counterweight to the dollar.
This gold-based payments system will dilute and ultimately eliminate the impact of US dollar-based sanctions.”
Late last month, China finally launched its much anticipated yuan-denominated oil futures contract. Many analysts think this is yet another sign that the mighty dollar’s world dominance is coming to an end.