Gold Demand Peaks, US Petrodollar’s Fate Questioned

The U.S. dollar’s reign as the favored global currency, upheld by central banks worldwide since the conclusion of World War II, has been instrumental in maintaining American economic supremacy. The term “Petrodollar” was designated to the U.S. dollar because oil is traded in USD worldwide, which has been a long-standing tradition.

This status quo once elevated the dollar nearly to the level of gold as a reliable, long-term investment. However, the dominance of the dollar is now experiencing a swift decline in the financial realm.

Central banks across the globe are responding to the potential risks inherent in investing and trading in dollars, steering towards alternative investment strategies for the foreseeable future.

Gold demand has surged to an 11-year peak in 2022, with a significant boost from considerable purchases by central banks and strong interest from individual retail investors.

Throughout the year, annual gold demand surged by an impressive 18%, amassing 4,741 tons, excluding over-the-counter (OTC) trading. This marked the most substantial annual figure since 2011, fueled by record-breaking fourth-quarter demand, reaching 1,337 tons.

A key factor that led to this sharp increase was the purchase of 1,136 tons of gold by central banks, a 55-year high for a single year. This surge reflected a remarkable 152% increase compared to the prior year’s central bank purchases of a mere 450 tons of gold.

Geopolitical uncertainty and persistent inflation were identified by the World Gold Council as the primary catalysts for this unprecedented upswing. Notably, despite a significant slowdown in net central bank gold purchases due to Turkey’s considerable selling, central banks added a record amount of gold to their reserves during the first half of 2023.

Compiled data from the World Gold Council indicated that net central bank gold purchases totaled to 387 tons over this period, marking the most substantial first-half since quarterly data collection began in 2000.

The goal of the BRICS group — comprising Brazil, Russia, India, China, and South Africa — is to replace the United States dollar with a new common currency. China, being the world’s largest trading nation, has been a staunch advocate for the global adoption of the yuan, despite challenges such as limited convertibility and stringent capital flow control.

The popularity of gold being used as a solid investment strategy seems likely to continue. Unlike fiat currencies, gold remains immune to governmental manipulations and the volatile fluctuations of markets, making it a reliable way to protect financial resources in the midst of mass inflation and economic uncertainty.