The rise of any asset is the result of a combination of multiple factors, and the recent surge in gold prices, reaching historic highs, is no exception. On the surface, market expectations of the Federal Reserve’s monetary policy easing undoubtedly play a role. However, some may argue that the deeper driver of the gold price hike is the de-dollarization resulting from the weaponization of the US dollar, potentially prompting conspiracy theories.
The origins of all this can be traced back to the Russia-Ukraine conflict. The United States imposed financial sanctions on Russia, including seizing related overseas assets, freezing its sovereign wealth fund, and excluding major Russian banks from SWIFT. Recently, U.S. Treasury Secretary Yellen openly expressed support for liquidating about $300 billion of frozen assets from the Russian central bank and allocating them to the long-term reconstruction of Ukraine.
These sanction measures have compelled Russia to initiate “de-dollarization” measures, including settling natural gas supplies to “unfriendly” countries and regions in rubles, as well as proposing a reserve currency based on a basket of currencies at BRICS-related meetings.
Economist Jim Rickards stated on social media that one of the main drivers of the gold rise is the “theft” of Russian assets, a view he has “no doubt” about. Furthermore, he believes that the impact of this behavior is far-reaching; if U.S. government bonds are deemed unsafe, euro and yen bonds are not much better. It can be imagined that at such a time, countries around the world would naturally turn to gold.
While this argument may seem somewhat tenuous and “extreme,” it is more like a “operation” than a “conspiracy.” In fact, the global trend of de-dollarization has been long-standing. Currently, the U.S. weaponization of the dollar is gradually damaging the credibility of the dollar and accelerating the global trend of “de-dollarization.”
This is not speculation, as one thing is certain: someone is steadfastly buying gold, especially central banks in emerging markets. Over the past six months, China, Germany, and Turkey have been the largest sovereign buyers of gold. The latest data shows that in February 2024, the Chinese central bank once again purchased 12 tons of gold, increasing its gold reserves to 2,257 tons, marking the 16th consecutive month of growth. Since November 2022, China has purchased 297 tons of gold.
Mainstream financial circles are also embracing this viewpoint. Bloomberg macro strategist Simon White recently wrote that the active purchase of gold by central banks globally is aimed at de-dollarization, reducing reliance on the dollar for reserve assets.
White stated that central banks are abandoning the purchase of the dollar in favor of gold for two main reasons: first, the inflation rate has not been “subdued” despite the Federal Reserve’s aggressive interest rate hikes, and continued large-scale fiscal deficits threaten to further erode the real value of the dollar and lead to another rise in the inflation rate; second, various countries, especially those with less friendly relations with the United States, are closely monitoring how the United States will handle Russian assets, which makes them reluctant to hold too many dollar assets.
