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Physical GOLD Is Back!

A global race to amass as much physical gold as possible is currently underway.

Starting since the time of the Global Financial Crisis (GFC) in 2008, there has been a global movement for nations and their central banks to:

  • repatriate their physical gold holdings from western central banks based in New York, London and Paris;

  • deliberately dump the US dollar and US dollar-based assets (e.g. US treasury bonds) through a deliberate policy of ‘de-dollarisation’;

  • diversify their asset portfolio given increased economic and financial risks; and

  • increase their overall physical gold holdings.

This phenomenon is also being mirrored in the private sector with the major financial institutions and high net worth individuals also seeking to increase their portfolio allocation of physical gold bullion.

Behaviour Catalyst

These behaviours have been driven by a series of economic forces that have continued to build‑up over recent years, including:

  • the dramatic escalation of global debt since 2008 to now over $US 250 trillion (the largest amount of global debt in world history);

  • increased financial market complexity especially given the significant quantum of financial instrument derivatives within the global financial system;

  • increased levels of global systemic financial risk given the high levels of financial concentration and inter-connectedness between Global Systemically Important Banks and global capital markets;

  • the inability for major governments and central banks to normalise monetary and fiscal policy to pre-GFC levels; and

  • the future direction of global macroeconomic policies.

The origins of many of these forces stem largely from the policy response to the GFC as the globally coordinated fiscal and monetary stimulus response only achieved inflated asset prices and debt levels and did not resolve any of the underlying structural problems and imbalances within the global economy and financial system.

Many of these economic forces dramatically intensified in calendar year 2018 which equally saw consequential action in both the gold and foreign exchange currency markets.

Record Central Bank Net Physical Gold Purchases

For example, according to the World Gold Council[1], 2018 saw the largest amount of net purchases of physical gold by world central banks since 1967 with 651.5 metric tonnes purchased. These net purchases were conducted largely by Russia (274.3 tonnes), Turkey (51.5 tonnes), Kazakhstan, India, Iraq, Poland and Hungary.

These net purchases were, according to the World Gold Council, driven by:

“Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets."

Moreover, significant central bank net purchases of physical gold are expected to continue throughout calendar years 2019 and beyond.

Such purchases have already begun in the early months of 2019 as evidenced by:

  • the Chinese Government[2] who have resumed acquiring physical gold after pausing their purchase program for two years (i.e. 2016 – 2018); and

  • the Uzbekistani Government who have announced plan to increase their physical gold reserves by 474 tonnes by 2024.

Physical Gold Repatriation

Such large net purchase of physical gold has also coincided with an effort by several countries to repatriate their physical gold holdings from US, British and French Central Banks who have stored the physical gold of other nations for safe keeping dating back to the commencement of the Cold War and heightened risk to Soviet military aggression.

The movement around gold repatriation stems, in large part, from concerns about:

  • the stability of the global financial system;

  • the lack of transparency within the global gold market;

  • potential convert gold leasing arrangements by western central banks; and

  • the overall integrity of physical gold assets of individual countries.

These concerns have manifested into national governments seeking to obtain direct custody of their physical gold bullion.

For example, starting with Venezuela in 2012 with their request of the US Federal Reserve to repatriate their physical gold holdings, a steady stream of nations have also followed suit including Hungary and Turkey who successfully repatriated gold in 2018.

Moreover, Romania has announced its intentions in March 2019 to repatriate their gold from the Bank of England as it seeks to hold 95% of its physical gold holdings within the country[3].

The recent phenomena of physical gold repatriation have continued to gain traction globally in recent years, especially given:

  • concerns regarding the potential delays to the repatriation of German gold from 2012;

  • consistent rumours that physical gold stocks held in western central banks may have been compromised; and

  • the refusal to release the gold of the Venezuelan Government by the Bank of England in 2018 despite existing contractual arrangements.

Gold repatriation has also been raised in Australia given that 99.9% of the Reserve Bank of Australia’s (RBA’s) physical gold holdings is held at the Bank of England.

De-Dollarisation - Dumping of the US Dollar

Concerns about growing economic imbalances, excessive asset bubbles, growing private and public sector debt that is fuelled by excessive monetary stimulus and currency debasement have brought into question the ongoing viability of major currencies and their role in the international monetary system, especially the US dollar as the world’s reserve currency.

Concerns over the management of the US dollar, especially given:

  • high fiscal budget and trade deficits;

  • soaring record levels of federal and state government debt as well as US foreign debt; and

  • the inability of the US Federal Reserve to normalise official interest rates and their balance sheet through quantitative tightening

have led many non-western nations to adopt a geo-strategic policy of ‘de-dollarisation’ which is a specific economic strategy to reduce their use of the US dollar in international trade and investment flows[4] and to reduce their investment exposure to US-denominated assets.

The strategy of ‘de-dollarisation’, which is an actively promoted public policy tool of the Chinese and Russian Governments in particular, has been implemented through various initiatives including:

  • reducing ownership of US-dollar denominated assets (such as the US Treasury Bonds[5]);

  • the establishment of new cross-border payment systems (e.g. the China International Payment System (or CIPS[6]));

  • introduction of non-US dollar denominated commodity futures contracts (e.g. the Petro-Yuan Futures contract[7])[8]; and

  • extensive use of bilateral currency exchange swap agreements[9].

Concerns of the ‘de-dollarisation’ process have led to major US investors such as Ray Dalio (Chairman of Bridgewater Associates) and Larry Fink (CEO of Blackrock) to express concern that the status of the US dollar as the global reserve currency will soon cease and that, as a result, the US dollar would likely collapse in value on foreign exchange markets by as much as 30%.

Never Ending Gold Debt Bubble - More Monetary Stimulus Coming

Moving forward, concerns about the stability of the global debt bubble, the global economy and international monetary system are expected to intensify throughout 2019 as market participants come to the realisation that policy makers in major developed economies are unable to normalise macroeconomic policy settings given the likely severe disruptive economic effects.

Given these effects, both international and national level institutional policy makers have already provided signals indicating that additional monetary and fiscal stimulus measures will be both required and deployed. To date, policy makers have indicated that:

  • existing monetary policy tightening cycles have likely come to an end (e.g. the US Federal Reserve);

  • additional monetary and fiscal stimulus will be injected into their respective economy (e.g. the Chinese Government and the RBA);

  • quantitative easing may be adopted as a regular non-emergency policy tool (e.g. US Federal Reserve and the Bank of Japan); and

  • severely negative nominal interest rates are required if a global economic recession were to eventuate[10] (e.g. the International Monetary Fund).


Confidence in the international fiat currency monetary system continues to wane as world central banks continue to implement measures that will not only defend the global debt bubble from popping, but will keep it growing.

This collapse in confidence also coincides with the simultaneous build-up of systemic economic and financial risks that pose potential catastrophic implications if these risks were to become realised.

Ongoing currency debasement and debt creation through exotic policy measures such as zero per cent interest rates, negative nominal interest rates and quantitative easing have reduced confidence that government-issued currencies, such as the US dollar, the Euro and the Japanese Yen will hold their long-term purchasing power and maintain their dominance within the international monetary system.

Physical gold bullion is now returning back in vogue around the world as a riskless physical counterparty asset that:

  • has a 5000 year proven track record; and

  • provides a form of monetary insurance; and

  • can be used as the basis for the settlement of international trade and investment transactions.

In short, physical gold is returning to its traditional role as the most trustworthy form of debt‑free money the world has ever known.

John Adams is the Chief Economist at As Good As Gold Australia


[4] This policy has also been adopted by nations who have been concerned that the US Government has been abusing the US dollar in order to project political and military power across the world.

[5] Foreign holdings of US debt fell to 36% in January 2019, the lowest in a decade. Moreover, foreign investors dumped $US 77 billion of US Treasury Bonds in December 2018, the most on record.

[6] The CIPS has allowed the Chinese Government to enter into specific agreements with a range of countries including Russia, Japan, Indonesia, Argentina, etc.

[7] As the largest global importer of crude oil, China, via the Shanghai International Energy Exchange, introduced the Petro-Yuan Oil Futures Contract in March 2018. This futures contract provides a market mechanism for China to purchase crude oil internationally using Chinese Yuan (rather than dealing in US dollars), which in turn allows for the seller to exchange Yuan for physical gold.

[8] The European Commission has sought to encourage the use of euro denominated price benchmarks for crude oil through the advocacy of several policy recommendations. See following link:

[9] The Russian Government, for example, has sought to use bilateral currency exchange swap arrangements to further expand the use of the Russian Rubble in international commerce. The Russian Government in October 2018 signed a major military arms agreement with India where the Indian Government agreed to settle the transaction in Russian Rubbles. See following link:

[10] For analysis of the IMF’s recommendations regarding negative nominal interest rates, read the John Adams article. “The New Global Push for Negative Nominal Interest Rates”. See:

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