NewsRescue
Central banks throughout the world are abandoning the US currency in favour of gold as a safe haven asset, according to Ruchir Sharma, chairman of Rockefeller International.
Prices for the commodity have risen by 20% in the last 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” such as central banks, according to Sharma’s article in the Financial Times on Sunday.
According to the investing expert, authorities are drastically lowering their dollar assets in favour of a safer option. Central banks now account for a record 33% of monthly global gold demand and are buying more gold than at any point since tracking began in 1950, according to Sharma.
“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 said, adding that “clearly, something new is driving gold prices.”
According to Sharma, nine of the top ten central bank buys are from the “developing world,” which includes 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 explained.
He ascribed the gold rush to increased sanctions pressure placed by the US and its allies, with as many as 30% of governments suffering international sanctions, up from 10% in the early 1990s.
“Thus, gold, the oldest and most traditional of assets, is now a vehicle of central bank revolt against the dollar,” Sharma contended.
After Russian assets were frozen abroad and the country was shut off from the SWIFT global financial messaging system, some countries began to look for alternatives.
“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, Washington’s weaponization of the dollar has come at a cost, as even allies such as Thailand and the Philippines have begun to explore for alternatives.
