At this point, gold is actually the oldest gold, but those born after 1950 must have only read about what was happening in writings. Because the Bretton Woods agreement was alive at that time, and every USD printed had to have a gold equivalent.
This system, which lasted until the 1970s, later lost its validity and gold became only an ornament and investment tool. Since then, my generation, those a little older than me and those after me have only seen gold in these two concepts. There is also the issue of superconductivity, which is used in this way, albeit minimally.
Gold, which has been an ornament and investment for years, has taken its place in literature as a security again in the last few years on top of these features. The freezing of Russian assets in various parts of the world during the Russia-Ukraine war caused everyone else to wake up to the issue and to consider that such a thing could be done for them one day.
As a result, countries started to increase their reserves in an effective commodity that could replace paper money by buying more gold and started to call their own depository banks to keep their gold in their own custody. China is at the forefront of these countries. According to the data of the World Gold Council, China has actually bought 3 times more gold than it declared. Similar situations have occurred in many countries.
Let me open a parenthesis at this point and remind you that before Russia entered Ukraine, it calculated the oil price at half the market price when calculating its budget and made income/expenditure calculations accordingly. Then it entered a war that was not called a war. So what is it? After the times when extra precautions are taken and calculations are made, risky and difficult times may come. In a situation where the world is racing to collect gold, who knows what the possibilities of what will happen next have increased, such a situation exists.
On the other hand, there is the reduction of USD reserves, which is a much-talked-about topic. To be honest, the share of the USA is still the highest among reserve currencies and there is no data showing that it has decreased in a short time. However, when looking at the years, there is a slight decrease. However, under no circumstances can it be said that the USD is losing its power as a reserve currency just by looking at this data. On the other hand, if we look at the conjuncture, it is seen that the decreasing share of the USD is partially filled with the Euro and partially with the Yuan. The share of Yuan will most likely increase. At this point, let me also state that, according to RAND Europe's article, just before the war, Russia converted 60% of its National Wealth Fund into Yuan and the remaining 40% into gold. Isn't it interesting? It is a real situation that explains both the expected increase in Yuan in reserves in the future and the fact that countries buy gold in bad times.
But as I mentioned above, the asset with the biggest share increase in reserves is gold. Let me speculate here and add my own comment; the share of gold is increasing because in the future, such conditions are expected that paper money may become invalid and only those who have gold can trade with it. Unfortunately, the story tells a little bit about this.
So what I mean is that gold is not the old gold, it seems like it will replace a kind of money again. Otherwise, why should central banks be the biggest gold buyers in the market for 3 years in a row and make up more than 20% of the total gold demand? Let me tell you an anecdote about this issue. In a survey conducted by the World Gold Council, when central bankers who manage reserves in developing countries were asked what the logic behind buying/holding gold was, around 20% of them said “the expectation that there will be changes in the international monetary system”. There are factors that get more votes than this, but they are more or less known issues. What is important is that such an expectation that has never existed before has now emerged and institutions have started to take action with these expectations.
When viewed within this framework, it is actually illogical that an asset with zero internal yield, that does not pay dividends like new stocks and that does not yield returns like bonds, is in such high demand. However, what a big and predictable price movement gold has. In fact, I think that the conditions that will enable gold to replace paper money are still years away. Therefore, for now, I do not see any harm in investing in paper gold such as gold mining stocks and ETFs. But we will see what the future brings.
The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.
