The US dollar is so strong that China's central bank, among others, just keeps loading up on gold

🌈 Abstract

The article discusses the surge in gold purchases by China and other central banks as a safe-haven asset amid China's economic struggles and the strong US dollar.

🙋 Q&A

[01] China's Economic Struggles and Gold Purchases

1. What is driving the surge in gold purchases in China?

• China's economy is struggling, leading people to rush to buy gold as a safe-haven asset to hedge against economic uncertainties
• The Chinese central bank has also been adding to its gold reserves, marking the 18th straight month of additions

2. How is the strong US dollar impacting China's economy?

• The strong US dollar is making it too expensive for emerging nations like China to import goods
• The Chinese yuan has lost 1.6% against the dollar this year and is down 4% over the past 12 months

[02] Central Bank Gold Buying Spree

1. What is driving the global increase in central bank gold buying?

• Central banks, including those from emerging markets like Kazakhstan, Oman, Kyrgyzstan, and Poland, are buying gold to diversify their assets and hedge against the strong US dollar
• The World Gold Council reported that central banks bought 290 tons of gold in the first quarter of 2022, the strongest start to any year on record

2. What are the political motivations behind central banks' gold buying?

• Some nations not aligned with the US are looking to reduce their US dollar reserves, perceiving the risk of sanctions
• Governments aligned with the US are also adding gold to protect against higher and more volatile inflation globally

3. How might the rush into gold assets impact the US dollar in the longer run?

• A stronger US dollar could weaken its role as a reserve currency, as borrowers search for alternatives if access to the US dollar becomes more expensive