Russia Passes China in Gold Holdings as Gold Buying Goes Up Around the Globe
The Russian central bank passed China last year in increasing gold holdings as gold buying goes up around the globe. Russia has been buying gold every month for almost three years, while China’s accrual has tapered off slightly. This past month, Russia acquired 20 metric tons to put its gold reserves at 1,857 tons. It also makes it the fifth largest holder of sovereign gold in the world. The U.S. is still far ahead though with over 8,000 metric tons reportedly held in Fort Knox. Russia considers its gold holdings as a feature of “national security.” Russia Central Bank’s first deputy governor Sergei Shetsov said that Russian citizens and banks owning gold is a way of “beefing up national security.” His implication of course is for economic security rather than military for the U.S. and EU sanctioned Russia.
Shetsov also discussed the possibility of possible BRICS (the nickname Brazil, Russia, India, China, South Africa due to similar features of large, fast-growing, emerging global markets) agreements on gold pricing and trading to upset the current global dominance of the U.S. dollar. Moscow and Beijing have already signed a memorandum of intent on bilateral precious metals trading. This will likely pave the way for further avenues for gold hubs in global trading. Furthermore, in the past couple years China has introduced the Shanghai Fix as an alternate gold pricing market to the New York COMEX and London Fix.
What this means for investors: It is clear that on the global stage, gold is considered wealth. The BRICS countries consider it a key part of sustaining economic security and gaining power in the global market. As geopolitical tensions around the globe increase, expect gold acquisition to increase as well.
Currency Alternatives: Can Gold and Crypto Salvage Venezuela?
As gold buying goes up around the globe for powerful, emerging markets like Russia, Venezuela looks at it as a possible life raft. Venezuela’s ravaged economy has much its people unable to buy food and necessities. In the midst of the severe economic crisis, hyperinflation has pushed the Venezuelan bolivar down to next to nothing. It is worth less than World of Warcraft virtual currency and 100,000 bolivars is worth only $4 USD.
In an effort to prevent a worsening of the political and economic situation, President Maduro is attempting to launch a national cryptocurrency. First he announced the launch of an oil-backed cryptocurrency called the petro. The following day he announced a coming gold-backed cryptocurrency called the petro gold. He gave few other details about the currencies though.
What this means for investors: Maduro must believe himself out of options to bank on something as volatile as cryptocurrency. The oil and gold backed cryptocurrencies are an attempt to skirt financial sanctions. However, they will probably not save Venezuela from hyperinflation and its collapsing, socialist economy. Investors question whether they have any real, impactful value given concerns about Venezuela’s solvency and transparency. Maduro’s thought is probably that commodities like gold and oil have tangible, lasting value. Whether this will translate to the murky world of cryptocurrency though is doubtful. Venezuela right now is a lesson on the pitfalls of fiat currencies in a socialist system, and there is no apparent easy way out of its current crisis.
Gold Swings Back and Forth This Week on Stronger Dollar and Interest Rate Hikes
Gold stayed rather quiet this week. At the beginning of the week it was trading lower in anticipation of a Fed announcement on interest rates. Sure enough, the Fed announced a rise in interest rates that raised bond yields and firmed the dollar. However there is also an expectation for rising inflation that led to a softening of the dollar index and a gain for gold by Thursday. Rising inflation generally means rising gold prices. However, overall, gold struggled this week and had one of its worst weeks for the year.
What this means for investors: Despite the weak performance for gold this week, there are reasons to remain bullish on gold. Check out analyst Carter Worth’s case for gold to reach $1,400.
The Gold/Silver Ratio
Analysts often look at the gold/silver ratio to predict movements in the precious metals markets. The ratio is simply the price of gold per ounce divided by the price of silver per ounce – or how many ounces of silver it takes to buy an ounce of gold. Right now, the gold/silver ratio is indicating that silver is relatively cheap compared to gold. The last time we saw such a relationship was February of 2016, and shortly thereafter, both metals took off. In recent weeks as gold saw some big upward movement, silver lagged behind, but once it catches up, both metals could be in for gains.
What this means for investors: Silver prices jump around with greater volatility than gold prices. Historically, the current pattern is bullish for metals, so this is a good opportunity to increase both. With silver relatively cheaper and poised to make a catch-up run, it is an especially good time to consider silver.
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