The decline of the U.S. dollar in international prestige is accelerating, and the proof is found in the central banks and their record demand for gold to back up their currencies.
For decades, the dollar was the underpinning of currencies around the globe. This set the stage for the economic dominance of the U.S. even as the country ran deficits and racked up trillions in national debt.
But that was then. The dollar’s status as being a dependable store of value is plummeting, and central banks across the globe are looking for other resources in which to safeguard their economies.
— Ben Bartee (@BenBartee) August 28, 2023
That alternative increasingly is gold.
According to CNBC, demand for gold skyrocketed to an 11-year record in 2022 on the strength of large purchases by central banks. The World Gold Council (WGC) also reported that retail investor purchases soared.
Gold demand for the year surged 18% to a global total of 4,741 tons. That amount was spurred by a 55-year high of purchases — 1,136 tons — by central banks.
This represented a staggering 152% increase from 2021. Inflation and international uncertainty are credited for the spike in central banks rushing to the historically safe refuge.
As for 2023, the first quarter through March experienced the highest volume of purchases seen in the same period since data was first collected by the WGC in 2000.
According to Technocracy, central banks continued their buying binge in the first half of 2023. They added another record amount to their reserves through the end of June with total net gold purchases of 387 tons in only six months.
That was also the highest first-half tally recorded by the WGC since 2000.
Uncertainty is often a trigger for returning to the safety of gold, and central banks are increasingly turning to the precious metal for security. Louise Street, senior market analyst for the WGC, told CNBC that this trend is only increasing.
She explained that “increasingly over the last two years, we’ve seen the importance that they placed on its performance during times of crisis.”
As for the importance of the dollar, it must be noted that China is leading an international push to elevate the yuan to underpin major currencies. Many believe the Ukraine war has only increased Beijing’s position as it tries to unseat the U.S. dollar.