Like millions of Americans, I like to check the weather forecast each morning so I have a good idea of what to expect and don’t get caught unprepared. It’s the same reason I like to keep my eye on headlines from around the world—the more I know about my environment and the world around me, the better I can prepare for the future.
And right now, it looks like the geopolitical landscape is getting pretty rocky—and that may have big implications for gold.
Tensions continue to increase between the United States and China.
On January 27, 2023, Reuters reported on what it called “sparring” between the United States and China at a World Trade Organization meeting over existing trade disputes between the two nations. Then, on February 4, a U.S. Air Force fighter shot down an alleged Chinese spy balloon off the coast of South Carolina, further increasing tensions between the two nations.
Speaking with Fox News, columnist and author Gordon Chang said that China is “engaged in the fastest military buildup since the Second World War” and that current U.S. policy regarding China has “created the conditions for history’s next great war.” Previously Chang had posted to Twitter that the balloon incident shows “China is preparing to go to war.”
On February 6, 2023, CNBC wrote that analysts say relations between the two nations “look increasingly fragile,” but also noted that “both countries have emphasized the need to communicate.”
To me, this means we may be able to expect geopolitical uncertainty to continue for some time—and in times of uncertainty, many Americans have historically looked to gold as a safe-haven asset. And not just Americans.
Russia just bought an all-time record number of gold bars.
Russia’s central bank has been implementing a policy of de-dollarization for years—turning their U.S. dollar reserves into other assets to lessen their reliance on American money and perhaps lessen the blow of any economic sanctions levied by the United States.
One of those other assets is gold. And on February 3, 2023, Reuters reported that Russia purchased an all-time record number of gold bars in 2022—more than 50 metric tons—which is more than 10 times the amount purchased in 2021.
Part of this increase, according to Reuters, is because of the Russian government removing certain taxes on buying and selling gold for Russian citizens—a move the news agency says is a “bid to draw people away from using the U.S. dollar as a safe haven.”
Another reason Russia may be hoarding gold is that it plans, along with Iran, to unveil a new cryptocurrency backed by physical gold. However, Forbes noted on January 27, 2023, that the new cryptocurrency is “unlikely to help Russia and Iran evade sanctions.”
My takeaway from this news is twofold: We’re once again seeing signs of further geopolitical turmoil and also seeing that the governments of the world may be looking to gold as a safe haven. In fact, on February 1, 2023, CNBC reported that demand for gold exploded to an 11-year high in 2022, mostly thanks to a 55-year high in gold buying by central banks.
The combination of geopolitical uncertainty and central bank demand may push gold to new highs.
Last month, on January 3, 2023, CNBC reported that several analysts are projecting record high prices for gold in 2023, following the precious metal’s hitting a six-month high. This quote in particular caught my attention, from Saxo Bank head of commodity strategy Ole Hansen: “The de-dollarization seen by several central banks last year when a record amount of gold was bought looks set to continue, thereby providing a soft floor under the market.”
This is what I mean when I say that I like to “check the weather” and know what’s happening in the world around me. If I were looking for a good time to add gold to my personal or retirement portfolio, this sort of news would certainly inform my decision. And regardless of what my decision might be, I would get to enjoy the peace of mind that comes from knowing any decision I make is an educated one. So the question now is: What will you do?