Emerging Countries Scramble for Gold

Whilst Western central banks dumped their gold reserves 20 years ago, the central banks of emerging nations have been purchasing gold at rates not seen in over 50 years.

The first quarter of 2019 saw 145.5 tons purchased, an increase of 68% compared to the previous year. The World Gold Council reported over 715 tons have been hoarded over the last four quarters, the highest total ever recorded. The trend began following the global financial crisis of 2008-09, when the banks looked to diversify their foreign exchange reserves and reduce their exposure to US developments. As mentioned in our previous blogs, President Trump’s weaponization of economic tools as foreign policy muscle is leading countries to seek alternatives to the dollar for their savings.

With no end in sight to the US-China trade war, gold is becoming one of the more favourable investments, with prices expected to top $1,400 an ounce this year due to continued geopolitical and trade uncertainty weighing heavy on global economic growth.

As the trade war escalates, weakening global growth, there is the very real possibility we will see another round of monetary policy stimulus. The threat of a currency war looms, further boosting gold’s standing as a safe haven for investors.

Billionaire investor Paul Tudor Jones, fund manager and creator of Tudor Investment Corporation has announced gold will be his favoured investment over the next 2 years. He believes if a breakthrough to $1400 occurs, a further quick jump to $1,700 is on the cards.

Once again showing all roads concerning the global economy lead to the US and President Trump's policies, Jones believes the threat of tariffs on $300 billion of imported Chinese goods could be the "material event" that could push the US economy into a recession.

Speaking on Bloomberg News, Jones said “We’ve had 75 years of expanding globalization and trade… and now all of a sudden it’s stopped,” he said. “That would make one think that it’s possible we go into a recession; it would make one think that rates in the United States go back down to the zero bound level; gold in that situation is going to scream. [Gold] will be the antidote for people with equity portfolios.” 

Jones comments certainly match the recent behaviour of gold, which has seen gains equating to the best weekly performance in a year, touching $1336.85 at the time of writing.