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Seems entirely sensible to me

A record central bank gold rush has been triggered by fears of Western sanctions after Russia was made a pariah state in the wake of its invasion of Ukraine, according to the World Gold Council.

Officials in many countries outside the West are rethinking their foreign currency reserves after the sanctions meant Russia’s central bank lost the use of its war chest, hampering its ability to protect the ruble and its banking system.

Central banks snapped up more gold in the first nine months of 2022 than all the annual totals since 1967, according to the WGC. Almost 400 tonnes of gold were bought by central banks in the third quarter, quadruple the amount acquired in the same period a year earlier.

Money printing has advanced much faster than the production of goods and services. Therefore each piece of money is worth less in goods and services. Gold stocks do continue to rise apace, but at a slower rate than that money supply. Logically, therefore, we’d expect gold to increases its value vis a vis money and something like maintain it’s value in goods and services.

Not wholly and exactly, but as a rough guide to the near future that is what we’d expect.

And who is most likely to grasp this? The central banks, the people printing the money…..

8 thoughts on “Seems entirely sensible to me”

  1. Central banks snapped up more gold in the first nine months of 2022 than all the annual totals since 1967, according to the WGC.

    Didn’t seem to affect the gold price much. It didn’t go up until mid Feb, and then only to mid 2020 levels. Total known world holdings are a hundred and seventy odd thousand tonnes, so the movement of 400 isn’t enormous.

  2. Higher interest rates have increased the opportunity cost of holding gold. This has worked to offset the inflation-driven appreciation that Tim describes.

  3. @PJF
    For central banks to be buying gold somebody has to be selling it. It is, after all, essentially a zero sum game.

  4. Bloke in the Fourth Reich

    I wonder how much of the relatively stable gold price is attributable to reduced demand for wedding gifts in China and to a presumably lesser extent India due to regime coofphobia.

    Next year might be interesting for more than one reason.

  5. Gold was already high so I suspect it’s close to its limit. People know that if things get really bad governments can just take it by force, FDR in the land of the free style.

  6. “maintain it’s value in goods and services.”
    If you don’t know the difference between “its” and “it’s” why should I take any notice of you?

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