Powered in part by “colossal” central bank purchases, global gold demand in 2022 was the highest in over a decade, according to a new report from the World Gold Council.
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Annual gold demand jumped 18% over the prior year to a total of 4,741 metric tons.
Central bank gold buying surged to its highest level in 55 years.
The dramatic growth in the global monetary demand for gold should not be a surprise in a world experiencing a trifecta of debt, inflation, and war.
Every currency crisis begins with debt. Total global debt is now $300 trillion. That’s 349% of global productivity.
The United States is the world’s largest debtor nation, with $31.457 trillion in on-the-books indebtedness. The sheer scope of U.S. debt is one factor driving central banks and informed individuals to reduce their exposure to dollar risk with the enduring value of gold.
Debt is the raw material from which inflation is fashioned. Much of the U.S. debt portfolio, acquired when rates were historically low, will have to be rolled over at higher rates. Although it is early in that process, higher rates are already beginning to show up in sharply higher interest payments.
So far in this review, we have seen central banks increasing their gold holdings in preference to U.S. dollars.
China is among the major U.S. creditors backing away, shrinking its holdings of U.S. dollar debt. Japan is also no longer buying any U.S. debt. This is happening at a time when the U.S. needs to finance more debt than ever.
Historically speaking, more borrowing with fewer lenders means the Treasury may have to offer even higher rates to find new borrowers.
Does this look like a victory over inflation to you?
War wraps up our trifecta of factors driving gold demand. Since Russia rolled into Ukraine less than a year ago, Congress has approved more than $113 billion in arms and related aid. For comparison, that is almost 7% of the total 2023 Omnibus Appropriations Bill.
During periods of economic stress, war finds its way into affairs by one means or another. Sometimes it is by design.
In Shakespeare’s telling, King Henry IV, on his deathbed, urged Prince Harry to “busy giddy minds with foreign quarrels” in times of crisis. Divert the people’s attention from the deteriorating conditions of their lives by fingering some foreign devil and chest-thumping about it, he advised.
Sometimes hot wars break out from embargos and sanctions imposed by one power on another. Such was the case during World War II in the Pacific. It appeared to start with Pearl Harbor, but the prelude was economic warfare.
No one likes to face the prospect of war or even talk about it. That goes for us as well, but in the interest of making sure our friends and clients are prepared, here are the observations of gold expert Jim Rickards, the editor of Strategic Intelligence, on the subject:
The greatest geopolitical and existential threat in the world today is not pandemic, recession or social disorder. It’s the threat of nuclear war resulting from the ongoing War in Ukraine. In the past, we’ve explained that nuclear wars do not start on impulse or as a first resort. They will be the result of a steady process of escalation from which neither of the two nuclear-armed opponents is able to withdraw in time to prevent catastrophe.
…. The warmongers ignore that they are on an escalatory path to nuclear war. That war may come sooner than anyone expects. That’s the nature of escalatory dynamics. Investors should prepare accordingly.
In times like these, gold deserves to have a place in everyone’s portfolio. The debt-inflation-war trifecta demands it.
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment advice, and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.