Gold prices have lately been skyrocketing to new highs, breaching past $2,300 in a new record milestone. The gold price spree has been spurred by the leading central banks around the world and their quest to stock gold as their latest obsession.
Banks usually purchase gold to diversify their assets and to hedge against volatile market conditions, but why are banks around the world stockpiling gold as if there’s no tomorrow?
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Reserve Banks Around the World Are Relentlessly Buying Gold: What’s Happening?
Gold is now breaching a new price milestone. The yellow metal is currently trading at $2,386 an ounce, with gold futures sitting at $2,374. Gold has been dubbed one of the best-performing assets this year, leading global economies to make active purchases by painting their reserves yellow with gold.
However, according to the Kobeissi Letter handle on X, these “obsessive” yellow metal purchases made by banks are signaling a potential loss of faith in their currency systems and methods.
Speaking about it in detail, the handle outlined the outlandish gold purchases that the nations have been making so far. China has been leading the gold stockpiling spree by adding 290 metric tons to its reserves. In the years 2022 and 2023, the World Bank collectively purchased 1037 tonnes of gold, respectively.
The handle then connected the purchases to the rising currency crisis dynamics, adding that such extensive gold purchases might be signaling a potential currency crackdown looming over the nations due to the worsening geopolitical and economic developments.
“China’s central bank increased its gold holdings for 17 straight months. In 2022 and 2023, world central banks bought 1081 and 1037 metric tons of gold, respectively. Prior to 2022, there was never a year in history with 1,000+ tons of central bank gold purchases. Have central banks lost faith in their own currencies?”
An Unsustainable Fiscal Path Awaits the US?
The general sentiment concerning USD and gold is projecting a stark anomaly. The rising gold metrics can destabilize the value of USD, turning user sentiment to support and using gold as a hedge rather than promoting the usage of USD.
Similarly, the Kobeissi Letter on X further highlighted another serious economic development where the US debt-to-GDP metrics are poised to rise in the next three years.
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Dubbing it an “unsustainable fiscal path,” the looming development may bring forth serious challenges for the US to encounter, even adding pressure to the USD’s shining prestige.
“Over the last two decades, the US debt-to-GDP ratio and gold have been directly correlated. As US debt-to-GDP levels increased, so did gold prices. Since late 2023, US debt has been increasing at the historic pace of $1 trillion every 100 days. At the same time, gold has returned ~20%, making it one of the best-performing assets of the year. The CBO estimates that US debt-to-GDP will hit a new record within 3 years. We are on an unsustainable fiscal path.”