AFRICA ( Commonwealth Union ) _ Particularly the central banks of emerging markets appear to have a renewed demand for gold. According to the World Gold Council, 2022 witnessed a record high in central bank acquisitions of gold, which totaled more than 1,000 tonnes.
Hilary Joffe, editor-at-large for Business Day, was interviewed by Business Day TV to learn more about how SA should support its gold industry to capitalize on the trend.
Gold demand experienced a record year in 2022. According to the World Gold Council, the major deciding factor was central bank purchases, which reached a record high of 1,136 tonnes. 800 tonnes of this were produced in the second half of the year, which was more than double the average for the previous ten years.
In other words, it happened after Russia’s invasion of Ukraine and the ensuing financial sanctions on it, particularly those affecting its foreign exchange reserves held in assets denominated in dollars, euros, or yen.
The classic “safe haven” commodity is gold. When there is a risk of inflation (or a recession), its price tends to increase, but as bond yields rise and central banks in advanced countries raise interest rates, gold loses its allure because it returns nothing. After rising on inflation fears, the price of gold fell until late 2022, when it started to rise once more as the Fed indicated that rates would need to rise for longer.
The central bank buying binge appears to have been a major factor in the decoupling. Since the global financial crisis, central banks in emerging markets have been increasing their gold holdings. Compared to the United States, they typically represent a far smaller portion of their overall gold and foreign exchange reserves.
Because of the big, liquid, easily traded, well-developed financial markets where most central bankers have traditionally desired to retain their reserves, the majority of official foreign exchange reserves are often maintained in assets denominated in dollars, euros, or yen.
Many central banks in emerging markets have reconsidered the nature and administration of their reserves as a result of the sanctions on Russia. But on top of that, there is also the increased economic fragmentation of the world, which was initially fueled by the widening geopolitical gap between the US and China and, more recently, by disagreements over the conflict in Ukraine and Russia.
Fortunately, gold is transported by air rather than rail, so Transnet isn’t a factor in our gold exports at least. Power, water, infrastructure, crime, and other issues have made it difficult for SA’s mining industry to fully capitalize on the now-failing commodities boom. But now that gold is waxing, SA needs to make sure we don’t miss this chance as well.
