The Chairman of Rockefeller International, Ruchir Sharma, has written a piece in the Financial Times arguing that as central banks around the world are shifting away from the US dollar, they are shifting their attention to gold as a safe-haven asset.
In the past six months, the prices for gold have surged 20% due to demand which dealers say is not “the usual suspects,” such as big and small investors “seeking a hedge against inflation and low real interest rates,” but rather it is from “heavy buyers” such a central banks, Sharma wrote Sunday.
The investment expert goes on to say that the regulators are exchanging their dollar holdings for positions in gold as a safe alternative. Sharma added that 33% of monthly global demand for gold is accounted for by central banks, who Sharma says are ramping up their gold buying more than has been seen since the data began being kept in 1950.
He went on to explain that, “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,” adding “clearly, something new is driving gold prices.”
Sharma also pointed out that of the top ten central banks buying gold, nine are in the “developing world,” including China, Russia, and India.
Sharma went on to add, “Not coincidentally, these three countries are in talks with Brazil and South Africa about creating a new currency to challenge the dollar.”
Sharma believes the surge in purchasing of the precious metal is primarily due to sanctions pressure levied by the US and its allies, which has led to up to 30% of nations facing international penalties, compared to just 10% in the early 1990’s.
Sharma concluded, “Thus, the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar.”
Some of the countries began seeking alternative stores of wealth after witnessing Russia afflicted with sanctions which froze its dollar reserves abroad, and locked it out of the SWIFT global instant financial messaging system.
Sharma said, “Suddenly it was clear that any nation could be a target.”
He went on to observe that the US saw sanctions as a “cost-free way to fight Russia,” however the weaponization of the dollar is now coming at a cost, as even US allies such as Thailand and the Philippines are looking now for alternatives to the dollar.
