Central banks in BRICS+ countries and other neutral nations are acquiring gold at record rates, driven by escalating political instability, inflation concerns, and the strategic weaponization of the U.S. dollar, according to Vahan Roth, Executive Director at Swissgrams AG, a gold tokenization firm.
In a recent analysis for GIS Intelligence Consultancy, Roth highlighted that gold surged to an all-time high of $2,480 per ounce on July 17, surpassing its previous peak of $2,075 set in August 2020. This increase reflects central banks’ strategic maneuvers amid geopolitical and economic uncertainties.
Roth attributes the price hike to ongoing global conflicts and political volatility. “The current geopolitical landscape features two active wars— in Ukraine and the Middle East— which could potentially escalate into broader international conflicts,” Roth explained. “Additionally, significant elections are taking place this year, including in India, the UK, and the US, where political shifts and unpredictable outcomes contribute to global uncertainty.”
Despite a moderation in inflation, Roth noted that monetary policies remain restrictive. “Although inflation rates have decreased from recent highs, pressure persists on households and businesses, potentially exacerbated by governments’ tax increases to address fiscal deficits,” he said.
Roth pointed out that gold continues to perform as expected in times of doubt. “During periods of uncertainty, investors naturally turn to gold as a safe haven,” he remarked.
However, Roth identified a significant shift: while gold prices have risen, retail investor demand has dwindled. “Retail purchases have decreased significantly despite the climbing prices, with selling activity increasing,” he noted. “This suggests that central banks, rather than retail investors, are driving the recent price surge.”
The latest data from the World Gold Council reveals that central banks have been significant buyers. In Q1 2024, notable purchases included the People’s Bank of China, adding 27 tons; the Central Bank of Turkey, increasing its reserves by over 30 tons; the Reserve Bank of India, acquiring 19 tons; and the National Bank of Kazakhstan, adding 16 tons.
Roth emphasized that this central bank buying spree is not coincidental. “China has been steadily increasing its gold reserves since October 2022, with a temporary pause this spring and expected continuation if prices retreat,” he said. “Similarly, Russia’s gold reserves now constitute over 29% of its total reserves, up from 11.8% six years ago.”
Roth attributes gold’s rising value to the weaponization of the U.S. dollar. “The U.S. dollar, a global reserve currency, is increasingly used as a tool in geopolitical conflicts, as seen in its application against Russia,” he stated. “This has prompted nations to seek alternatives, with gold emerging as a viable option.”
The expansion of BRICS+ and its advocacy for a multipolar world order further supports gold’s appeal. Roth described the group’s suggestion of a gold-backed currency as ambitious but noted its limited immediate impact. “BRICS+ encompasses 45% of the global population and controls significant portions of the world’s land and GDP,” he said.
Roth outlined three potential scenarios for gold’s future:
Ongoing Non-Western Gold Purchases: Roth considers this scenario likely, with BRICS+ and non-U.S. aligned nations continuing to drive gold demand, potentially shifting geopolitical dynamics.
Gold-Backed Economies Challenging the U.S. Dollar: Over the long term, Roth sees the possibility of gold-backed economies diminishing the U.S. dollar’s influence, though he views this as a longer-term prospect.
Complete De-Dollarization: Roth regards this as the least likely scenario, predicting that the total de-dollarization of the Global South could dramatically alter global power structures, but remains improbable in the near future.
Roth concludes that while no fiat currency rivals the U.S. dollar’s dominance, gold stands as the primary alternative. “A gold-backed currency, though unlikely, would mark a significant shift away from fiat currencies,” he said, highlighting gold’s enduring role as a stable financial anchor.
