Opinion: Gold's Resilience Amidst Geopolitical Uncertainty

Tue 07 May 2024

Recent reports of Western Exchange Traded Funds (ETFs) offloading significant quantities of gold, 3 0000 kilos, while central banks significantly bolster their reserves with circa 300,000 kilos of the precious metal begs some serious contemplation. The underlying message seems clear: Western investors are turning towards government bonds denominated in major currencies, signaling a profound unease regarding geopolitical tensions and the looming specter of widespread conflict.

The rationale behind this shift is multifaceted. Government bonds in dollars, yen, sterling, and euros are perceived as safe havens, backed by nations possessing formidable agricultural and military capabilities. This strategic positioning suggests a deep-seated concern among investors regarding the potential escalation of global hostilities.

Conversely, central banks appear committed to reinforcing the value of their fiat currencies by stockpiling gold—a move that some may dismiss as clinging to what a British politician famously labelled a "barbarous relic." Yet, history provides ample evidence of gold's enduring allure, particularly during economic turbulence and geopolitical strife.

While gold may currently seem like a costly investment option, especially considering the attractive yields on govt bonds, savings accounts and Individual Savings Accounts (ISAs), a longer-term perspective reveals its intrinsic value as a hedge against geopolitical upheaval and currency debasement.

It's crucial to remain cognizant of governments' propensity for drastic measures when circumstances dictate. The example of the US government's confiscation of privately held gold following the Wall Street crash of 1929 serves as a poignant reminder. In that instance, all citizens including dentists were compelled to surrender their gold under threat of imprisonment, receiving a paltry US $31 per troy ounce— a fraction of today's market value[ US $2,300+].