ACCORDING to the International Monetary Fund (IMF) and the World Gold Council, the central banks of several emerging markets have been increasing their purchase of gold.
These gold purchases are on a consistent monthly basis by the way, indicating that they are diversifying their currency reserves into gold at the expense of the United States dollar.
Strangely, our own Bangko Sentral ng Pilipinas (BSP) has not joined in on this trend, with our gold purchases either small or staying flat.
In any case, the trend is worth paying attention to, because gold diversification means that the old fiat currency system is breaking down.
It broke down when the United States weaponized the dollar against Russian assets back in the early days of the Ukrainian War.
It broke down with tariffs, military threats and the formation of emerging trade blocks. It is breaking down due to rising debt and unsustainable trade practices.
The only reason the fiat system still exists is because there are no alternatives.
But as bad as the United States’ fiscal problems seem to be, the other major economies are in a much worse shape. China, Japan, Europe and even most of the emerging economies are in a similar or even worse state than the US.
So far, that equilibrium holds. But judging by the gold purchases, many don’t believe that this will last.
So what is happening now with the gold purchases is insurance against a future of war, debt and global fragmentation.
No one issues gold. It cannot be sanctioned nor can it be weaponized. It does not create dependence on a particular system or bloc.
And for those countries that fear the future, gold is a great hedge against the threat of financial control, as Iran has learned with its war with the US.
Gold is returning, not out of preference but because the old global economic system is falling apart./PN
