Category: Bullion Bulletin

As recently as mid-2020 the US central bank, the Federal Reserve, was ‘targeting’ inflation – i.e. trying to ensure inflation was – 2% a year. Whoops – the Consumer Price Index (CPI) in March came in at 8.5%, the fastest pace of inflation in 40 years.

The Fed, like all central banks, has two main tasks – achieving price stability while maintaining maximum employment. It’s clearly failed on the first and is in danger of bringing about failure for the second.

The Fed wants to bring about what’s called a ‘soft landing’, a slowdown in the economy such that high inflation is choked off while unemployment does not increase beyond tolerable levels. The trouble is that the Fed is caught between a rock and a hard place.

Inflation has much further to go, thanks to Russia’s invasion of Ukraine, a ‘black swan’ (unexpected and unpredicted) if ever there was one. The World Bank has said that the world is now facing “the largest commodity shock… since the 1970s…[which] is being aggravated by a surge in restrictions in trade of food, fuel and fertilizers”. It reckons that energy prices will rise more than 50% and agriculture and metals’ prices will go up almost 20% this year. Countries are starting to adopt protectionist measures, restricting exports of key products – Indonesia this week banned exports of palm oil. Sunflower oil exports – of which Ukraine leads the way – are evaporating, increasing demand for alternatives such as palm oil, a key ingredient in everything from lipstick to cookies to biodiesel. Higher palm oil prices are dragging up prices of alternatives, such as soyoil. Supermarkets in the UK have started limiting cooking oil purchases. The Commodity Research Bureau (CRB) Index, a basket of 19 commodities, has more than doubled since the US emerged from pandemic lockdowns.

In other words, there are plenty of reasons to think that there is so much momentum backlogged into inflation prospects that – even if peace broke out tomorrow in Ukraine – consumer prices will carry on inexorably rising. In the face of this, what can the Fed do? The conventional method of tackling inflation is to push interest rates above the inflation level, to make money and credit more expensive, and (it is hoped) that will discourage spending. But consumers in the US, the UK, the Eurozone, have so long lived with interest rates at or close to zero that getting to around 10% will be politically difficult and economically destructive – a massive recession would swiftly follow. “Nine times since 1961, the central bank [the Fed] has embarked on a series of interest rate increases to rein in inflation. Eight times a recession followed”. Let’s not forget the political dimension to this – the Democrats in the US will face testing mid-term elections later this year and inflation is bound to be a hot-button issue.

It’s starting to feel as though we are in for a repetition of the 1970s, when stagflation – elevated price increases combined with stagnant economic growth – was an all-too familiar word. According to some commentators, a stagflationary environment creates the perfect combination of factors to drive strong performances in both gold and the dollar – both of which are seen as defensive assets at times of economic stress, such as now.

Gold exchange traded funds (ETFs) in the first quarter of 2022 had net inflows of 269 tonnes, the highest quarterly net inflow since Q3 2020. The total assets under management in these ETFs now stands at 3,836 tonnes, or $240 billion (based on the London Bullion Market Association’s afternoon gold price of 28 February), the highest tonnage level since November 2020. The underlying explanations are that rapidly rising inflation and unexpected geopolitical risks more than offset the drag from higher nominal rates, and the promise of yet higher interest rates ahead.

ETFs enable the smaller investor to have exposure to the gold price, and the costs of the storage and insurance of the gold are wrapped into the fund’s ongoing fees. ETFs that track the price of gold have a number of things to be noted in their favour but the issue of ownership is a little opaque.

According to materials submitted to the US Securities and Exchange Commission (SEC) the gold in some ETFs is ‘allocated’. The SEC is responsible for protecting investors by enforcing US securities laws. But there is ‘allocated’…and then there is ‘allocated’. If the gold is ‘allocated’ then it is owned outright by an investor and stored in a professional bullion vault. If the metal is ‘unallocated’ then it remains the property of the bank or other intermediary and the person who has paid for the metal is essentially no more than a creditor of the bank. So it is vital to know what you have actually bought – which in the case of Glint is gold that is allocated directly to you. In the case of some gold ETFs the gold is “allocated to the Trustee”, but it is “not allocated to individual ETF holders”, which means “indirect ownership to ETF holders”. Because an ETF is exchange-traded, the names of ETF shareholders keep changing every day, which cannot be reflected on bullion every day.

Moreover, with ETFs there is ‘counter-party risk’, i.e. the possibility that the other party in an agreement (which in the case of an ETF is the fund) will default or fail to live up to their obligations. Given that one of gold’s primary benefits is being a financial asset that is not simultaneously somebody else’s liability, owning a gold ETF rather than gold via Glint is a poor substitute. When you invest in a gold ETF you in reality become a shareholder in the trust that manages the ETF, not a gold holder. So the price of gold could be soaring while the ETF is going bankrupt at the same time.

With Glint you have both immediate liquidity and direct allocated ownership of your gold; isn’t this a most sensible way to save gold?

It’s been 42 years since inflation in the US was so high. Annualised consumer price inflation (CPI) at 8.5% – meaning among other things that Dollars idling in bank deposit accounts are annually losing around 8% of their purchasing power – will bring joy to very few.

Russia’s President Putin, who seems averse to smiling in public, however might be doing a little jig; he said rising fuel and food prices would soon start putting pressure on Western politicians. He’s right. In the past 12 months, gasoline pump prices have gone up in the US by 48%. That price rise in a nation of drivers such as the US is politically unpalatable. President Joe Biden’s public approval rating dropped to 41% this week. US policymakers will no doubt take comfort from the fact that once volatile items such as food and energy are stripped out, ‘core’ CPI advanced only 0.3% in March, the slowest rise since September last year. Maybe that’s good news – but only if commodity price rises can be constrained, and (given what’s happening in Ukraine) there’s no certainty on that front.

The White House likes to pin the blame for the fuel inflation on the Kremlin but that’s not strictly true. “I banned Russian-imported oil here in America, Republicans and Democrats in Congress called for it and support it”, said President Biden on 31 March. In fact the US uses very little Russian oil. Out of the 19.78 million barrels of petroleum per day it consumed in 2021, only 672,000 barrels were Russian crude or refined products.

On the other side of the Atlantic things are not looking so great either. In the UK, the consumer price index went up by 7% in March, the fastest rise in 30 years, with energy bills the guiltiest party. The UK’s dependence on Russian energy imports is relatively low; just 4% of its gas and 8% of its oil, although 13% of its diesel comes from Russia. In the Eurozone, the annualised rate of inflation hit 7.5% in March, up from 5.9% in February.

On both sides of the Atlantic, senior figures think their respective policymakers are living in a fantasy. Otmar Issing, one of the architects of the Euro, has publicly accused the European Central Bank (ECB) of having lived “in a fantasy” about the dangers of inflation perhaps getting beyond its control. “Inflation was a sleeping dragon; this dragon has now awoken”, he said.

Issing is not the first to resort to an animal metaphor for inflation – Andy Haldane, the former chief economist of the Bank of England reminded the world in a speech in February 2021 of Friedrich von Hayek’s description of trying to control inflation as being like trying to catch a tiger by its tail. “It is obvious the ECB is late to react, [to inflationary pressures] while the Fed might be even more behind the curve” said Issing.

Issing’s view is shared by James Bullard, president of the St Louis branch of the US central bank, the Federal Reserve. Bullard said it is a “fantasy” to think that interest rates – the only tool central banks have for tackling inflation – can be put up sufficiently high to halt rising prices without damaging the economy.

Unforeseen shocks – such as a resurgence of the Covid pandemic and further lockdowns in China or other major markets – could exacerbate the inflationary pressures, says Bullard, who wants the Fed to show households that it’s “serious” about quelling inflation – or else. That ‘or else’ is the decision by the former Federal Reserve chairman Paul Volcker to put interest rates to 20% in the early 1980s – which killed runaway inflation but tossed millions out of work.

The UK government is starting to court digital asset companies. John Glen, minister for the City, said a week ago that the UK is determined to show the country is “open for crypto businesses”. As an “emblem of the forward-looking approach” the UK Treasury is working with the Royal Mint on the creation of a non-fungible token; a questionable use of taxpayers’ money to say the least.

Glen went on: “We see enormous potential in crypto… and we want to give ourselves every chance to take maximum advantage. We aren’t going to lower our standards, but we are going to sustain our technological neutral approach”. This move will distress some in government and perhaps some at the helm of the Bank of England (BoE), which has consistently argued that investors in cryptocurrencies could lose all their money. Indeed, as the UK government was unveiling its plans to throw open the doors to crypto businesses, Andrew Bailey, governor of the BoE, was giving a speech in which he referred to cryptocurrencies as a “front line” for scams. In 2020, Bailey said that Bitcoin, the biggest cryptocurrency, had “no connection” to money and was “highly risky”.

Is Britain’s financial establishment experiencing a bout of mental dissociation?

Probably not. Since leaving the European Union the Conservative government has been running in all directions, hunting for novel ways to demonstrate that the UK can become a global centre for the latest technologically-innovative industries.

And the BoE’s Financial Policy Committee (FPS) published a report in the days before John Glen’s enthusiastic endorsement of the digital currency world, a report that largely follows the existing regulatory framework regarding crypto technology in traditional finance, and also embraced the Treasury’s proposal to regulate stablecoins and backed international efforts to regulate DeFi applications.

The biggest news is that Glen said “I can confirm that we will be legislating to bring certain stablecoins into our payments framework, creating the conditions for stablecoin issuers and service providers to operate and grow in the UK”. So stablecoins are to be recognised in the UK as a valid form of payment.

Former Prime Minister Harold Wilson addressed his party’s faithful at the annual conference in 1963, where he spoke of his intention to help Britain forge a new industrial model “in the white heat” of a revolution. Glen sounded a bit like Wilson, promising to “position the UK as a pro-innovation jurisdiction” and getting the Financial Conduct Authority (FCA) to organise a series of “crypto-sprints”.

But although this will be a revolution it may not be white hot. The doors to the digital revolution have cracked ajar rather than being flung wide open. Unlike El Salvador, which has embraced Bitcoin as legal tender, or the Swiss city Lugano, which is hoping to do the same, the UK will limit itself to accepting stablecoins as legal payments.

Stablecoins are arguably the acceptable face of the cryptocurrency Wild West; a stablecoin is pegged to an underlying asset, normally a currency such as the US Dollar. It is thought (hoped?) that by pegging the token to something else they have greater stability – hence the name. There is only a handful of stablecoins pegged to the Pound Sterling. Stablecoins have not escaped controversy; Tether, a Hong Kong based company which issues Tether tokens, is supposedly pegged to the US Dollar. It’s the largest stablecoin, is by far the most-traded coin; its price should logically be $1 per token. Tether settled a legal case with the US Commodity Futures Trading Commission (CFTC) in October 2021, in which the company paid a $41 million fine. The CFTC accused Tether of lying about its coin being fully backed by Dollars. The Bank for International Settlements (BIS) published its ‘working paper 973’ last October in which it warned that “stablecoin systems could pose severe risks to the integrity of the global financial system” Stablecoins may be wrongly named – ‘slightly-less-insecure-than-other-cryptocurrencies’ might be better.

John Glen posed an interesting question at the end of his speech: “So what does the future of crypto here in the UK look like?” Which he answered: “No-one knows for sure”. That uncertainty hangs over the whole enterprise.

What links the Kip, the Inti, and the Manat?

They all were currencies; they all are no more; and all died as a result of hyperinflation – three extinct currencies out of a list of almost 600.

We might think that the inflation we are experiencing, somewhere between 5% and 10% a year (much more for individual items, such as astonishing spikes in energy bills) is insufferable. Hyperinflation puts this into the shade however.

Economists concur that the definition of hyperinflation is when prices rise by 50% per month. Unsurprisingly, hyperinflationary bursts tend not to last very long – the currency turns into wallpaper and the government (if government survives) will knock several zeroes off the currency, call it something else, and try to carry on.

History is littered with objects that have been used as currency, or money. Are there any differences between money and currency? In our daily life we use the two words interchangeably without problems but there are subtle differences. Perhaps the most important is that money is a concept – a concept representing value. ‘Money’ is intangible; currency is tangible, it’s what we use in our transactions. This economist’s pedantry can be ignored – for most of us the two are one and the same.

In his 1875 book, the British economist William Stanley Jevons said there were four functions that an object needed to fulfil to be accepted as money: it needed to be accepted as a medium of exchange, a common measure of value, a standard of value, and a store of value. Feathers, stone wheels, teeth and shells have all been used as a store of wealth. Throughout history, gold, silver, copper and other metals have also been used to store wealth, measure value, and as a means of exchange. They have occupied the place of money and currency.

We’re about to live through something very unusual, something which is a little alarming – a big battle over currencies. Nations that are usually identified as ‘the West’ – more for ideological than geographic reasons – have sanctioned Russia, and are trying to do to the Rouble what Russian missiles have done to Mariupol. Much of Europe currently depends on Russian fossil fuels, supplied on long-term contracts and paid for in US Dollars.

President Putin is now retaliating to the sanctions by saying that if they want Russian gas, ‘unfriendly’ countries (the West) must open Russian bank accounts and pay in Roubles. US Dollars will no longer be acceptable, he says.

No wonder the International Monetary Fund’s (IMF) first deputy managing director, Gita Gopinath, foresees a more fragmented international monetary system, with the dominance of the US Dollar in official reserves starting to be undermined. It’s not just alternate currencies that will be in more demand she thinks: cryptocurrencies, stablecoins, central bank digital currencies (CBDCs) will be too.

The re-ordering of international finance will not happen overnight, but it is one of the consequences of the Ukraine conflict and President Putin’s push to have Russia’s key exports priced in Roubles.

Libertarians and those who find government burdensome flock to cryptocurrencies, but their status as ‘currencies’ is questionable; for one thing these are just so many, about 17,000, with new ones coming along all the time. Which to choose? Bitcoin currently dominates but will it always?

To be regarded as a currency – whether a private digital token, a government-licensed paper, or a central bank created token – an object needs to enjoy the confidence of a mass of people. What do people want from a currency? Stability of purchasing power, universal acceptance, easy transfer into other currencies – reliability. They want to know that the currency will be able to buy next year the same as it can buy today.

What’s heavier than 4,500 Eiffel Towers? The amount of electronic waste or e-waste, from electronic products (mobile phones, computers) we no longer use, each year. It’s a staggering amount of trashed plastic; globally more than 57 million tonnes in 2021. The World Economic Forum suggests that by 2050 the figure could be 120 million tonnes.

It’s thought that less than 20% of this e-waste gets appropriately recycled; the other 80% ends up in landfill or is exported, to be disposed of by workers in developing countries, operating in hazardous conditions. Even in the European Union, which has had comprehensive Extended Producer Responsibility (EPR) legislation in place for nearly two decades, consisting of targets and legal responsibilities, the EU’s formal e-waste collection rate is in 2018 was just 55%.

There are several dumping grounds for all this e-waste. The biggest dump globally is thought to be Agbogbloshie, a run-down area near Accra, capital of Ghana, although it is closely rivalled by Guiyu, in China’s Guangdong province. Agbogbloshie is known by locals as ‘Sodom and Gomorrah’.

Exporting toxic waste was banned in 1989 under the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal; but crucially the Convention permits exports for ‘re-use and repair’, which can (and does) cover a multitude of sins. Undamaged computer hard drives are especially prized at Agbogbloshie. An Agbogbloshie computer expert has claimed that he can “retrieve all your money from your accounts… If ever somebody gets your hard drive, he can get every information about you from the drive, no matter where it is hidden”. That alone should encourage greater caution about disposing e-waste.

The discarded product will be smashed up, the chip-board removed and the plastic burned. The chip-board will be ‘cooked’ to melt out the metals. The careless dumping is not simply a health hazard and environmentally polluting – it’s also giving away money. The US Geological Survey reckons there’s about 0.034 grams of gold in a cell phone, as well as 16 grams of copper, 0.35 grams of silver and a tiny amount of platinum. A gold mine is hidden away inside the estimated 151 million mobile phones trashed in the US each year.

In the UK, the Royal Mint, which retails coins and bars, says it’s now going to process up to 90 tonnes of circuit boards a week, retrieving hundreds of kilogrammes of gold to be re-used. The Mint is teaming up with Excir, a Canadian company, which claims to be able to recover almost all the gold contained in e-waste “in a matter of seconds”, recovering the metals at room temperature and thus reducing the toxic emissions from this process.

Sustainability and greater concern for environmental protection are becoming firmly entrenched in all kinds of activities that once were considered polluting. Glint has a firm commitment to a strong code of ethics and we take great care to obtain our gold from sources that support strong principles of environmental, social and governance (ESG) performance. One of our leading investors is the major gold-miner Sibanye-Stillwater, which leads the way on ESG in the mining industry.

The Dollar price of gold is being pulled in (at least) two different directions – geo-political anxieties (Russia & Ukraine, China & Taiwan) are giving support, while higher interest rates in the US (with the UK following, and the European Central Bank suggesting it could start raising Eurozone rates in the final quarter of this year) are acting as a drag.

For the moment the former seems to be in the driving seat. Russia’s invasion of Ukraine started on 24 February although the start of the conflict could also be dated from 18 March 2014, when Russia forcibly annexed Crimea. Nobody – apart from President Putin perhaps – knows what will satisfy the Russian leader and thus what might bring about a cease fire. This uncertainty is keeping gold on tenterhooks.

Since 24 February, the Dollar gold price has been on a rollercoaster. It shot up by more than $67 an ounce in 24 hours, between 08:00 on 23 February and the same time on the day of the invasion, to $1,961.92, only to lose more than $73 by the afternoon of 24 February, to $1,888.15. By 9 March, it was above $2,057, within spitting distance of its $2,075 record high of August 2020, only to fall again to trade around $1,945 yesterday.

Analysts are hastily revising price forecasts made late in 2021. Credit Suisse for example considered last December that in 2022 a range of $1,691-$1,877 would be seen but now sees a “sustained break above $2,075 in due course with resistance seen at $2,120 initially ahead of $2,167 and eventually our new core upside objective at $2,285/$2,300”.

Forecasting the short-to-medium term gold price is a mug’s game – something will always come along to throw ashes on the forecast. What is true is that gold lost 5.73% in 2021 but has this year recovered all that lost ground plus around a couple of percent.

Elon Musk, the great proponent of cryptocurrencies (and boss of Tesla) gave some sensible advice recently when he said “it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high…” Michael Saylor, a huge Bitcoin supporter, backed Musk when he Tweeted that “USD consumer inflation will continue near all- time highs, and asset inflation will run at double the rate of consumer inflation. Weaker currencies will collapse, and the flight of capital from cash, debt, & value stocks to scarce property like #bitcoin will intensify…” Saylor is however no fan of gold, although his understanding of how gold is created seems wrong. He told a recent podcast that “the reason bitcoin is ‘magical’ is because only 21 million tokens can ever be created, and it’s likely the only scarcity known to humanity… I can create more real estate in New York City. I can create more cars. I can create more luxury watches. I can create more gold. I can create more shares of a stock. I can create more bonds, I can create any commodity; they’re commodities by definition. Given enough money and time, I can create infinite of any of them”. Saylor is powerful, but even he can’t make two neutron stars collide – which is currently the only way of creating gold.

Gold is for those able to take a long-term, years rather than weeks, view. And with Glint, it is also for the immediate term, to be used as money in your everyday life. At Glint we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

The Western response to Russia’s invasion of Ukraine has so far focused on trying to isolate Russia from the international financial community and thus try to choke off its ability or will, to pursue further military action. The stranglehold placed around Russia’s economy has involved many elements, including the London Stock Exchange’s suspension of trading in companies with ties to Russia, and MSCI removing Russian stocks from its widely-followed indices.

There are many knock-on effects of this, not least a likely increase in fiscal stimulus within the Eurozone – Germany has said it will increase defence spending by €100bn this year and raise its annual defence spending to 2% of gross domestic product. These additional euros will not be available from Germany’s tax take; they will have to be supplied to the market by some sleight-of-hand, otherwise known as printing. The European Central Bank (ECB) is caught in a dilemma that’s familiar to the US and UK – galloping inflation (which ought to see much higher interest rates), but slower economic growth and – eventually – the need to help rebuild the destruction in Ukraine. Lots more fiat cash will need to be produced; perhaps there is, after all, a ‘magic money tree’?

The biggest damage to Russia’s economy would be if the West stopped its buying of Russian gas and crude oil. The gas and oil account for only around 15%-20% of Russia’s gross domestic product (GDP), they comprise half of the country’s exports of goods. Yet to ban Russia’s oil and gas would hurt Europe’s economy; Europe gets nearly 40% of its natural gas and 25% of its oil from Russia. Heating and gas bills, already at record levels, will inevitably go higher still.

Food prices will also surge. Russia and Ukraine account for about 25% of global wheat exports. Michael Swanson, Wells Fargo’s chief agricultural economist, has told Reuters: “It’s my assumption that Ukrainian crops won’t get planted, or not anywhere near what they typically plant. And the Russian crops will be planted but will be embargoed in many markets. This is not something that will be resolved in weeks or months”. The price of wheat (as measured by the global benchmark contract in the US) has risen 25% since the start of the crisis.

Russia has around $136 billion of gold in its reserves held within the country. As the rouble, its fiat currency becomes increasingly shunned by the world, if the country is to continue to trade it must hope that the West will keep taking its energy supplies – or it will need to mobilise its gold. Who will buy? China is the obvious choice.

It’s thought that around 25% of the reserves of the Russian central bank are held in Austria, France, and Germany. Canada, the European Union, the UK and the US said on 26 February that they would freeze the Russian central bank’s assets they have under their jurisdiction.

But almost 22% of the bank’s $630 billion of reserves are in gold; this is under the control of the bank. Russia has been steadily trying to de-Dollarize its economy in recent times, reducing its exposure to US sanctions. The bank’s share of gold in its reserves exceeded that of US Dollars for the first time in January 2021.

Leaving aside the collapse of the rouble and the possible tanking of the Russian economy, the invasion of Ukraine poses an unexpected challenge for Western central banks engaged in their own battle, against inflation, which is now 7% in the US and above 5% in the UK.

Will the war deter the US Federal Reserve from putting up interest rates? Higher US rates often imply a weaker US Dollar gold price. But as yet the Fed looks likely to stick to its course. The CME Fed WatchTool currently projects a 99.8% chance that the Federal Market Open Committee (the body tasked with setting US interest rates) will raise rates by 25-50 basis points when it next meets, on 15-16 March. On the other hand some analysts believe (in the words of Saxo bank) the “prospect of a 50 basis US rate hike is off the table with the market reducing the number of rates hikes this year to less than six”. And not everyone regards higher interest rates as a threat to the gold price. The US bank Wells Fargo, which expects several hikes, believes that these higher interest rates will not impede the Dollar price of gold from reaching $2,000-$2,100 by the end of 2022. That would signify a rise of 48%-55% since the end of 2021.

Meanwhile, inflation will not be easily stifled. The war means higher prices for Western consumers are on the horizon, following disrupted supply of several basic commodities, of which Russia is an important exporter. Supplies of not only crude oil and gas but also palladium, aluminium, nickel, wheat and corn are threatened, which has prompted Goldman Sachs to inform clients that it is “increasingly concerned” about the pace of inflation. Higher prices for these commodities will feed into bigger costs for construction (nickel in steel), vehicle catalysts (palladium) and bread, flour, biscuits and cakes, as well as animal feed.

Goldman Sachs said “gold’s unique role as the currency of last resort” come to the fore if the restrictions on Russia’s central bank prevent it from accessing its offshore reserves. In such a situation it would have little choice but to use its gold reserves to continue foreign trade, notably with China, which so far is one of the few countries not to condemn Russia’s invasion and not to impose sanctions. China has said it is “extremely concerned about the harm to civilians” in a phone call between its foreign minister and his Ukrainian counterpart. According to a statement put out by the Chinese authorities, “Ukraine is willing to strengthen communications with China and looks forward to China playing a role in realising a ceasefire”.

China may have had one of the world’s most stringent anti-Covid policies, locking down whole cities whenever a single infection has been found, but this has not apparently affected its appetite for gold. 2021 was the Year of the Ox in the Chinese zodiac, and gold demand in China proved stubborn even in the face of the pandemic.

According to a new report by the World Gold Council (WGC), China’s gold market outlook 2022, China’s gold consumption in 2021 went up by 56% compared to 2020. The WGC says that the Asian country’s gold demand in 2022, the Year of the Tiger, “will likely remain strong… despite concerns around a potential slowdown in China’s economic growth”. The WGC concludes that although 2022 may be a “challenging year for China’s economy” it expects its demand for gold jewellery, bars and coins to rise.

China is both the world’s biggest gold producer and consumer. According to the China Gold Association, consumption was almost 1,121 tonnes in 2021, while its production was almost 329 tonnes.

Officially, China has some 1,948 tonnes of gold in its official reserves, but there has long been speculation that it actually has a lot more. One analyst has pointed out that since 2000 China has mined about 6,500 tonnes of gold; given that exporting domestic production is not allowed, that lower figure looks extremely doubtful. China may have as much as 14,500 tonnes, or about 78% more than the US, which officially has 8,133 tonnes in its reserves.

The secrecy that surrounds the actual level of China’s gold reserves inevitably gives rise to speculation about the ulterior purpose of all this gold accumulation. Maybe it’s all entirely innocent; China just likes gold.

But China has a history of springing surprises when it comes to its gold. Back in 2009, it revealed to the world that its actual gold reserves were 1,054 tonnes, double the amount previously assumed. That same year it suggested that reliance on the US Dollar as an international reserve currency should be reduced. Since 2005, China has been diversifying away from the Dollar, when it broke the Yuan’s peg to the US currency and officially marked it to a basket of currencies.

That ambition, of knocking the Dollar off its perch, has not dimmed. But there are obstacles to the Yuan becoming an international reserve currency, not the least of which is confidence by investors and central banks that it is stable and secure.

China has ambitions for its Central Bank Digital Currency (CBDC), the e-yuan, to become domestically dominant, and some believe that if this digital form of money is a success, that will help raise the international status of the Yuan. In a world drowning in excessive money creation, backing its money with gold would greatly enhance the Yuan’s reputation.