Macromegas #36 - The Future of Gold
The Future of Gold
Hello Friends,
And happy Friday!
This essay is finance-centric, so I need to make clear that those are my personal views only, and not those of my employer.
Now that the legalises are behind us, let’s jump into a story of gold.
Recently, Russia announced it was getting rid of the historical 35% dollar allocation for its federal reserves.
Its new allocation looks like this:
This did not happen all of a sudden: Russia has been ramping up its gold allocation for years.
Interestingly, most other countries have not been following this trend, as shown in this graph.
This is not due to a gold shortage, as gold keeps being mined at a sustained rate globally.
It is not a question of liquidity either considering national reserves only account for ~17% of the total world supply.
This has brought Russia to #5 in the list of largest gold hoarders globally. Why is that so?
For thousands of years, gold has been the store of value for individuals and nations alike.
Bitcoin is a likely and potentially “better” alternative, but I don’t think it will ever replace gold. Both will coexist.
For central banks and treasuries, the only true refuge value available for purchase remains gold, for now.
Russia has been piling up because it does not believe in the dollar as a reserve currency and a long-term store of value.
Why keeping that much Euro then? And Yuan?
Because Europe is Russia’s main trade partner, and China second.
Trading value with the EU represents close to 10x that with the US, from Russia’s perspective, and 3x for China vs. the US.
EU + China represents 57% of all Russian trade value.
These are not store-of-value reserves. This is short-/mid-term balance for trade settlement. Means of exchange.
Dumping the dollar is partially political of course, especially considering the heavy US sanctions against Russia dating from 2014. But the overall increase in gold is a distrust in our current state of over-leveraged economy.
If you can’t hedge with bitcoin, your only (great) option is gold. (and if you can go for both, why not)
Now, if you go and fact-check me on Wikipedia, please be mindful that their map is wrong/outdated.
I rebuilt exclusive up-to-date ones for you.
First, plotting the absolute gold reserves amount in ton - the US clearly dominates the map thanks to WW2 and Bretton Woods.
Then, more interesting, plotting grams of gold per capita. Switzerland does not include private wealth, but it still stands out.
Finally, and the most interesting by far, plotting % of gold reserves vs GDP.
This shows the true commitment of each government / central bank either to a gold-backed economy (believing the economy will contract and fiat currencies will devalue) or to a leveraged financial system (believing that the economy’s current debt leverage is sustainable).
I had to check that this was Uzbekistan. Kazakhstan and Venezuela not being too bad either.
Our next story will be around the history of property… and spoliation. Spoiler, gold and crypto will be back. If you are not subscribed yet, don’t miss it:
Thanks for reading, and have a golden weekend,
V