The first is that the world’s central banks are crowding into gold given that its share in central bank reserves has surpassed the Dollar.
The second is that geopolitical uncertainty is behind central bank gold buying.
As a fan of sanctions - economic warfare is better than actual war - I have to push back on this with actual data on central bank gold buying.
Central banks aren’t in a gold buying frenzy: the chart above is why there’s so much talk about central bank gold buying.
The easiest way to see there’s no actual buying frenzy is in the chart below, which shows IMF data on central bank gold buying.
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The ECB this week put out a report on the “international role of the Euro.” The report is excellent, but it created two misconceptions. The first is that the world’s central banks are crowding into gold given that its share in central bank reserves has surpassed the Dollar. The ECB is careful to note this is all about the crazy run-up in gold prices last year, i.e. it’s all about valuation effects (not a central bank buying frenzy), but that got missed in the reporting. This post sets the record straight on that. The second is that geopolitical uncertainty is behind central bank gold buying. There’s no truth to that. In fact, with this kind of rhetoric the ECB amplifies falsehoods that get pushed by the anti-sanctions crowd. As a fan of sanctions - economic warfare is better than actual war - I have to push back on this with actual data on central bank gold buying.
What the ECB misses entirely - and subsequent reporting does too - is that it’s the safe haven status of gold that’s gotten damaged in recent months, while that of the Dollar looks way healthier than most of us would have imagined a year ago.
Central banks aren’t in a gold buying frenzy: the chart above is why there’s so much talk about central bank gold buying. Here’s the thing: it’s totally misleading. The black line is the share of gold in the overall reserves of 62 central banks from across all of emerging markets, which is where all the talk about alternatives to the Dollar originates. The black line is the natural log of the gold price. The run-up in the share of gold is entirely a price effect as the chart shows. The easiest way to see there’s no actual buying frenzy is in the chart below, which shows IMF data on central bank gold buying. There’s certainly steady buying, but there’s no sign of a frenzy or even of a geopolitical component. The pace of buying is lower than it was before COVID, for example.
