The gold bears have finally caved under the deafening barrage of fiscal and geopolitical catalysts, from Fed hints to intensely brewing conflict with Iran. Gold is already trading well above its 5-year high.
Not only has the U.S.-Iran conflict reached a boiling point, with Trump readying to deploy an additional 1,000 troops to the Middle East, but the European Central Bank has issued a defiant, dovish tone, saying it won’t hesitate to provide further stimulus: That means rate cuts.
The icing on the gold cake is the US Fed, which has now clearly indicated that it hasn’t abandoned the idea of rate cuts for 2019. But in this perfect storm for gold prices, a significant trend that is likely to outlast the current geopolitical meltdown and even the Fed’s policies is the global push for de-dollarization.
“Government’s around the world are becoming increasingly wary of the dollar’s hegemony in international trade,” said EuroSun Mining CEO Scott Moore to Bloomberg. “And they’re doing their best to distance themselves from it by using their gold reserves to buy more gold instead.”
This process is already underway mainly in nations with strong anti-U.S. sentiment including Russia, China, Iran, Venezuela, Syria, Turkey, Qatar, India, Pakistan, Libya, Egypt and the Philippines among others.
Naturally, these countries are turning to gold since the yellow metal is not under lock-and-key like the greenback and other electronic payment methods. This trend is abundantly clear, considering the buying activity of many central banks across the world.
According to the World Gold Council, central banks purchased nearly 70 per cent more gold during the first quarter of the year than they did during the previous year’s corresponding period. That’s the most they bought since the first quarter of 2013.
Most notably, Russia and China have pledged to accelerate their de-dollarization strategies because of Trump’s sanctions push. And they’ve reached a deal to use national currencies for bilateral trade.
The latest countries to jump on the de-dollarization bandwagon are Serbia and the Philippines. Serbia is boosting its national gold reserves, increasing them from 20 to 30 tonnes by the end of this year. It’s shooting for 50 tons by the end of 2020.