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Banking & finance
OpinionWorld Opinion

Anthony Rowley

Macroscope | Why investor faith in gold remains strong in these troubled times​

The gold price coming adrift from traditional anchors points to deep uncertainty about the world and concern for the global monetary system​

Reading Time:3 minutes

https://www.scmp.com/policies-and-standards

Anthony Rowley
Published: 4:30pm, 7 Sep 2024Updated: 6:18pm, 7 Sep 2024

What is the sharp and sustained rise in the price of gold telling us about the state of the global economy and finances, and why are central banks in Asia and elsewhere adding to their gold reserves? The answer seems to be concerns that there could be severe turbulence ahead.

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Banking & finance
OpinionWorld Opinion

Anthony Rowley

Macroscope | Why investor faith in gold remains strong in these troubled times​

The gold price coming adrift from traditional anchors points to deep uncertainty about the world and concern for the global monetary system​

Reading Time:3 minutes

https://www.scmp.com/policies-and-standards

Anthony Rowley
Published: 4:30pm, 7 Sep 2024Updated: 6:18pm, 7 Sep 2024

What is the sharp and sustained rise in the price of gold telling us about the state of the global economy and finances, and why are central banks in Asia and elsewhere adding to their gold reserves? The answer seems to be concerns that there could be severe turbulence ahead.
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The price of the precious metal has surged, to the point where the value of a single ounce has exceeded a record US$2,500 on some days in recent weeks. Meanwhile, the cost of a 400-ounce gold bar has reached US$1 million for the first time.


For those who maintain that cryptocurrencies – bitcoin especially – represent the way of the future, gold’s price performance during the past couple of years might appear to be an anachronism, a triumph of superstition over intellect. However, the price surge reflects present reality rather than some imagined brave new world.

What investment bank JP Morgan has termed “gold’s blistering rally” this year alone has seen the precious metal’s relationship with other assets such as the US dollar and interest rates break down. This is significant with regard to how the price is likely to move from here on.

The fact that the gold price has apparently come adrift from traditional anchors or benchmarks points not only to deep uncertainty on the part of central banks and investors about the state of the world but also to growing concerns over the condition of the global monetary system.

 

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This is hardly surprising. Rarely has there been such a conjunction of threats to global physical, economic and financial security as faces us now, with Russia’s invasion of Ukraine, Israel’s war in Gaza, potential conflict over Taiwan, political divisions, stock market instability, climate change and so on.

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Chinese consumers sell off old jewellery amid record high gold prices

 

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Gold’s dramatic rise has been driven by the “economic and geopolitical uncertainty of the past few years”, online trading platform Best Brokers suggested in an August 28 report chronicling the varied factors behind the rise.

As the global economy becomes ever more fragmented into rival economic and ideological blocs, so the established monetary system is coming under increasing stress and gold is reassuming its role as a safe haven asset.

Actions by the United States and other countries to freeze the foreign currency assets of Russia over its war against Ukraine has been termed by some as the “weaponisation” of the US dollar. To do so would be to tempt fate because the exorbitant privilege is not guaranteed and can be eroded.

 

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The freezing of Russian foreign exchange reserves could be seen as a bridge too far in this regard. It sets in train processes around the world that ultimately could lead to erosion of the dominant position of the US dollar.

This erosion has been under way for some time so far as the share of the US dollar in international reserves is concerned. The US dollar’s share of global foreign exchange reserves has declined to less than 60 per cent today from around 70 per cent 25 years ago, while by contrast gold’s share has risen dramatically, according to figures from the International Monetary Fund (IMF).

Recent gold buying by central banks has been intense. In 2022 and 2023, central banks bought more than 1,000 tonnes of gold per year, more than doubling the annual volume in the previous 10 years. The People’s Bank of China has been among the biggest buyers, followed by emerging market countries such as Turkey, India, Kazakhstan, Uzbekistan and Thailand.

 

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There has been a surge in Chinese interest in bullion during the past year and a half. The People’s Bank of China has raised the share of gold in its official reserves from 1.8 per cent in 2015 to a record 4.9 per cent at present while cutting its holding of US Treasuries from US$1.3 trillion in the early 2010s to US$780 billion.

According to data compiled by the World Gold Council and the IMF, after China slowed its 18-month long gold-buying spree in May, Turkey emerged as the biggest gold buyer with purchases exceeding 44.74 tonnes between January and June.

 

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China is still only the world’s sixth-largest gold holder behind the US, Germany, Italy, France and Russia, with Switzerland, Japan, India and the Netherlands making up the rest of the top 10 global holders. At the same time, China is catching up fast and has added 28.93 tonnes to its gold reserves of 2,264 tonnes in the past 18 months.

The US remains the country with the world’s largest gold reserve holdings, with 8,133 tonnes of the precious metal in its possession.

Germany is in second place with 3,351 tonnes, followed by Italy, France, Russia, and China, each having more than 2,000 tonnes in their reserves. India has experienced the second-highest gold demand so far this year with 37.18 tonnes in purchases.

There is every reason to think that both central banks and other investors will continue adding to their gold stocks in the short to medium term. The US Federal Reserve is about to embark upon what will almost certainly be a series of interest rate cuts beginning this month while stock markets appear to be entering another period of volatility.

The idea of a gold standard might be a “barbarous relic”, as John Maynard Keynes termed it, but faith in the metal as a store of value in troubled times remains strong, not least in Asia.

 

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European Luxury Shares’ $240 Billion Rout Is Just the Beginning​

• Some analysts see a slower-for-longer outlook for luxury firms
• Analysts are cutting profit forecasts as turnaround hopes wane

A Burberry Group Plc store in Shanghai.
Photographer: Qilai Shen/Bloomberg
By Kit Rees
September 8, 2024 at 4:00 PM GMT+8


After enduring almost a quarter-trillion dollar hit to their market value in recent months, Europe’s luxury firms may see their stock-market clout wane further as China’s downturn worsens.

Once seen as Europe’s answer to the US “Magnificent Seven” tech megacaps, shares in companies producing high-end clothing, handbags and jewelry are languishing, sapped by a spending slump.

Even more ominous are signs that China’s rich, who once flocked to upscale boutiques in Paris, Milan and Hong Kong, may not return, their appetite for pricey items extinguished by the economy’s downward spiral.

 

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Yellen Says No Red Lights Flashing as US Makes Soft Landing​

• Treasury secretary says she’s ‘attentive’ to downside job risk
• Yellen reiterates the importance of engaging with China

Janet YellenPhotographer: Jordan Vonderhaar/Bloomberg
By Viktoria Dendrinou and Madlin Mekelburg
September 8, 2024 at 1:57 AM GMT+8
Updated on
September 8, 2024 at 2:36 AM GMT+8
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Treasury Secretary Janet Yellen said there are no “red lights flashing” for the financial system, and reiterated her view that the US economy has reached a soft landing even as job growth weakens.

“For the US, the kinds of metrics that we would monitor that would summarize risks — whether it’s asset valuations or a good degree of leverage — things look good, I don’t see red lights flashing,” Yellen said Saturday in a fireside conversation with Bloomberg News’ David Gura at the Texas Tribune Festival. “I’m attentive to downside risks” on employment, she said, while saying job growth is solid.