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Updated 08:30 13/12/19

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Central bank gold demand ‘buoyant’ as emerging economies move away from US Dollar domination


Liam Sheasby

Liam Sheasby, News Editor
24 Sep 2018, 3:46 p.m.

The latest report from the World Gold Council, released last Thursday, says that emerging economies are the future of investment gold demand as the global economy evolves to become multipolar, rather than heavily weighted on the activities of the west.

Developing nations, such as Argentina, Hungary, and Mongolia, have made the diversification of central reserves a key policy, with the WGC describing gold demand as ‘buoyant’.

Using figures from the International Monetary Fund (IMF), the report shows that by the end of the first half of 2018, central banks collectively owned $1.36 trillion worth of gold, which equates to 10% of all global foreign exchange reserves. 193.3 tonnes of gold bullion was added to central bank reserves between January and June – an 8% increase compared to the same time period in 2017.

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While central banks keep up steady precious metal acquisitions in order to maintain a responsible balance in reserve holdings, developing countries are going one step further and increasing their demand in order to wean off the US Dollar.

The strength of the Dollar in recent months, as well as disagreements over foreign policy with regards tariffs against certain nations, has seen countries like China, Russia, Iraq, and Turkey all seek to do as little trading in US Dollars as possible, with the Petroyuan replacing the Petrodollar as a popular alternative.

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The WGC report cites the main driving force behind diversification as protection from the threat or fragility of the big three currencies. The US Dollar is seen as too powerful and, at present, overvalued, while the Euro and the Pound are both subject to political strains, such as Brexit and bailouts.

This change leads onto what the council’s research describes as the multipolar world. China’s size, population, and industry make it a rival superpower to the United States, but the USA has an advantage of decades over China as the favoured world currency. It will take time to undo this dependency and common usage. Gold is seen as the medium-term solution; bridging the gap as Asia in particularly moves away from Dollar’s dominance in foreign exchanges to having more options.

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The full World Gold Council report on central bank activity the first half of 2018 can be found here.

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