Central Banks Accelerate Shift from Dollar to Gold Worldwide
The comments below are an edited and abridged synopsis of an article by GoldBroker
The world’s central banks are increasing the gold they hold, bringing the total to a 31-year high. They have accumulated more than 4,500 tons of gold over the past decade. As of September, reserves totaled roughly 36,000 tons, the largest since 1990 and up 15% from a decade earlier.
The US dollar’s value against gold has dropped sharply over the last decade thanks to money printing. Although the Fed says it is tightening credit, other central banks continue their shift to gold, reflecting global concerns about the dollar.
Many economies are purchasing gold. Poland bought 100 tons in 2019; in 2021, Thailand bought 90 tons, India 70 tons, Brazil 60 tons, and Hungary tripled its gold reserves to more than 90 tons. Kazakhstan has sharply raised the ratio of gold to foreign exchange reserves.
Central banks and public institutions began to increase gold holdings in 2009. Prior to that, they often sold gold to increase holdings of dollar-denominated assets. The US economy was buoyant in the 1990s, and the profit generated by dollar-denominated assets was attractive.
The global financial crisis of 2008 caused an outflow of funds from US government bonds, resulting in falling values. That was followed by declines in US interest rates, and the central banks of emerging economies with weak credit began to protect their assets with gold.
In 2020, the currency-by-currency ratio of the dollar fell to the lowest level in 25 years.
The dollar’s decline is partly caused by falls in the value of the currency versus gold. Since President Nixon announced the end of the dollar’s convertibility to gold in 1971, the dollar’s value has fallen to roughly 1/50th of its former level because the supply of dollars, unshackled from gold, has increased some 30 times over the past 50 years.
The Fed says it will end its easy-money policy and begin raising interest rates in 2022, but the central banks of emerging economies are likely to continue their shift to gold from the dollar.