Gold v U.S. Treasuries – Central Banks, China & Volatility (Gold wins)

We have written recently of the continued massive buy up of gold by the world’s central banks. This has not gone unnoticed on the ‘twitterverse’ and press, and some very important commentary from well credentialled analysts and commentators are worth sharing here in case you missed it.

The coincidence of them stepping up to rampant net buyers after the GFC and (ironically) their unprecedented response of printing ‘money’ and ‘buying’ U.S. Treasuries with said ‘money’ is starkly depicted below. Net sellers since they left the gold standard, the GFC was very clearly the “Oh Sh!t” moment where the consequences of credit fuelled hubris were laid bare. We have said on numerous occasions, don’t do as they say, do as they do. And they be ‘doing’ gold big time.

And as if that is not enough, Goldman Sachs say a very large portion is unreported…

The elephant in the room is, and will likely remain, the very opaque Chinese central bank (PBoC). From NY Times:

““China is unquestionably driving the price of gold,” said Ross Norman, chief executive of MetalsDaily.com, a precious-metals information platform based in London. “The flow of gold to China has gone from solid to an absolute torrent.”

Gold consumption in the country rose 6 percent in the first quarter from a year earlier, according to the China Gold Association. It came on the heels of a 9 percent increase last year.

Gold investing became more alluring as traditional investments turned lackluster. China’s real estate sector, the destination for most families’ savings, remains in crisis. Investor confidence in the country’s stock markets has not fully returned. A string of big investment funds aimed at the wealthy toppled after failed bets on real estate.”

And topically.

“Another major buyer of gold in China is the country’s central bank. In March, the People’s Bank of China added to its gold reserves for a 17th straight month. Last year, the bank bought more gold than any other central bank in the world, adding more to its reserves than it had in nearly 50 years.

Beijing is buying up gold to diversify its reserve funds and reduce its dependence on the U.S. dollar, long considered the most important currency to hold in reserve. China has been reducing its U.S. Treasury holdings for more than a decade. As of March, China had about $775 billion worth of U.S. debt, down from about $1.1 trillion in 2021.

When China increased its gold holdings in the past, it bought domestically using renminbi, said Guan Tao, global chief economist at BOC International in Beijing. But this time, he said, the bank is using foreign currencies to buy gold — effectively reducing its exposure to the U.S. dollar and other currencies.

Many central banks, including China, starting acquiring gold after the U.S. Treasury Department took the rare step of freezing Russia’s dollar holdings under sanctions imposed on Moscow. Other American allies imposed similar restrictions for their currencies.

Mr. Guan said the sanctions had shaken the “foundation of trust for the current international monetary system” and forced central banks to protect their reserves with more diverse holdings. “We can see this wave of gold’s rise may be different from the past,” he said.

Although Beijing has been buying up gold, the metal accounts for only about 4.6 percent of China’s foreign exchange reserves. In percentage terms, India holds nearly twice as much of its reserves in gold.”

Whilst many central banks are buying up gold in reaction to the U.S. weaponizing U.S. Treasuries and the U.S. Dollar they are also looking at an increasingly volatile U.S. Treasury market. Billionaire businessman and mining financier Frank Giustra gets the closing word on the matter.