Central Banks Boosting Gold Reserves
Emerging central banks have been increasing their gold allocation to prepare for a new monetary regime where gold will play a crucial role as a settlement mechanism, says Goehring & Rozencwajg. These banks, including China, India, Turkey, Egypt, Qatar, and Singapore, are contributing to gold’s support above $1,900 an ounce and potentially pushing the price towards the $2,000 level.
Monetary Regime Change on the Horizon
Goehring & Rozencwajg forecasts a monetary regime change, similar to those in 1930, 1968, and 1998, which were highly stimulative for commodity prices. As the US dollar risks losing its reserve currency status, countries are increasingly shifting away from the greenback. Examples include Saudi Arabia considering settling oil in renminbi, sanctioned Russian oil sales paid in renminbi, Brazil wanting to settle agriculture trade with China in renminbi, and France’s TotalEnergies willing to accept renminbi for their LNG sales to China.
The Role of Gold in Future Settlements
While these developments are not yet a monetary regime change, wherein China has a closed capital account, gold may play a pivotal role in future settlements. Goehring suggests that any attempt by China to undermine the US dollar as a reserve currency would require some degree of gold convertibility. Foreign holders could then convert a portion of their trade surplus from renminbi into gold via the Shanghai gold exchange. Central banks, particularly China, are increasing their gold reserves, possibly in preparation for this system.
Bullish Outlook for Gold
Goehring & Rozencwajg remains bullish on gold for the rest of this year, projecting a break through $2,100. With emerging central banks preparing for a new monetary regime and the potential decline of the US dollar as a reserve currency, gold may play a key role in future settlements.