Key Takeaways:
- Gold spot price fell 2.5% short of a new record high.
- Central banks contributed to the price rally, raising their reserves throughout 2022.
- US Senators propose to stabilize the dollar by reintroducing the gold standard.
YEREVAN (CoinChapter.com) – Spot gold rose 3% this week to reach $2,020 an ounce on April 6, about 2.5% short its record price of $2,070 in March 2022.
Given the instability of the US banking system, the domino effect of the massive bank run from Silicon Valley Bank, and the Credit Suisse fiasco, investors sought to hedge their funds. So they turned to hard assets, such as gold. That said, institutional investors played a key role in the XAU rally.
Also read: 5 reasons why the dollar is f*cked.
Central banks have pushed gold spot prices higher since 2022.
Central Banks have been increasing their gold reserves since Q4 2022. According to the World Gold Council, “colossal central bank purchases, aided by vigorous retail investor buying,” pushed the yellow metal demand to an 11-year high in 2022 after an 18% YoY jump to over 4,700 tons.
“Central bank net purchases in Q4 totaled 417 tons, lifting H2 total buying to 862 tons. Echoing Q3, data for the final quarter of the year was again a combination of reported purchases and a substantial estimate for unreported buying.”
said the WGC.
Moreover, China’s gold reserves grew for four consecutive months, ending February 2023 with 2,050 tons, a 25-ton increase MoM, accounting for 3.7% of China’s total official reserves.
Meanwhile, Gold withdrawals from the Shanghai Gold Exchange (SGE) totaled 169 tons in February, an MoM increase of 30 tons and a 76 tons YoY rise, pushed by “healthy consumption” and “pent-up” demand.
Russia’s Central Bank said its bullion holdings jumped by over 31 tons the previous year as it bought gold in the face of Western sanctions. The Bank of Russia said it held over 2,340 of gold at the end of Feb 2023, a bullion hoard worth over $150 billion today.
As of early April 2023, the US commands the largest gold reserve globally, with over 8,130 metric tons in the American gold reserve. This amounts to a value of nearly $580 billion.
Also read: Gold Run Returns as ETFs and ETCs Witness Amazing Inflows amid Banking Crisis.
Meanwhile, the declining dollar dominance and the ongoing banking crisis prompted three US Senators to reintroduce the “gold standard.”
Will the US Senate consider reintroducing the gold standard?
Three US congressmen, Alex Mooney, Andy Biggs, and Paul Gosar, introduced a bill to Congress on March 30 to stabilize the dollar’s value by re-pegging the volatile greenback to a fixed weight of gold bullion.
In detail, the gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.
It was the basis for the international monetary system from the 1870s to the early 1920s and from the late 1920s to 1932, as well as from 1944 until 1971, when the US unilaterally terminated the convertibility of the US dollar to gold, effectively ending the Bretton Woods system.
“The Federal Reserve note has lost more than 40% of its purchasing power since 2000 and 97% of its purchasing power since the passage of the Federal Reserve Act in 1913. The American economy needs a stable dollar, fixed exchange rates, and a money supply controlled by the market, not the government.”
read the bill document.
The bill further proposes that “the gold standard puts control of the money supply with the market instead of the Federal Reserve.” The dollar’s peg to gold would discourage excessive deficit spending and encourage balancing federal budgets.
The bill has not yet reached the House of Representatives, but the greenback’s weakening continues, with the dollar index dropping 4% since the Silvergate bank implosion on March 8.
Also read: JOLTS Shows a Slowdown in Hiring — Will Crypto Market Slump?
