According to some reports, some countries are buying gold as if it were chocolate. No, it is not that they have an addiction to the precious metal, but that they want to reduce their dependence on the US dollar. And why do they want to do that? Because The dollar seems to them a very capricious currency, which rises and falls as it suits the United States, and which can also be blocked by political sanctions. For example, Russia suffered a lot when the United States punished it for invading Ukraine in 2022. So, what better than having gold, which is a safe value and that nobody can confiscate?
Now, despite the massive purchase of gold by central banks, it is possible that there will not be a radical transformation. The dollar probably has years of hegemony left. Gold only represents a small part of central bank reserves, and the dollar remains the most widely used currency in international trade and financial investments.
Of course doing business with Russia right now can be very dangerous, because the United States does not get along with them and often imposes economic sanctions on them. And not just the Russians, but also private companies that do business with them.
But there is a way to avoid these risks: buy gold. Gold is a metal that shines a lot, and is also worth a lot. So far this year, gold is up more than 10% in dollar terms. Because? Well, because, apparently, the world is getting more and more complicated, and gold is a way of protecting themselves from uncertainty for many. The world is increasingly multipolar, which means that there are more countries that want to rule. And that can generate conflicts and tensions.
Why are many countries buying gold as a form of political statement? Is it that gold has some magical power that allows them to influence the world? whatOr do they just like to keep something shiny and heavy in their vaults?
The answer is not that simple, but it could be summed up in one word: diversification. The central banks, which are the institutions in charge of managing the monetary reserves of the countries, seek to have a balanced portfolio of assets that allows them to face the risks and opportunities of the global market.
Gold is one such asset, and it has some advantages over others. For example, Gold is not dependent on any government or entity to maintain its value, instead it is governed by supply and demand. Gold is not devalued either by inflation or the monetary issue, but tends to increase its price in times of crisis or uncertainty.
Also, gold is a way to show independence from the US dollar, which remains the dominant currency in international trade. Some countries, such as China or Russia, have been buying gold and selling part of their US Treasury bonds.which could be interpreted as a sign of distrust or defiance towards the North American power.
Another reason why many countries are buying gold is to diversify against interest rates, which are the price paid for borrowing or lending money. Interest rates affect the value of currencies and of bonds, which are debt securities issued by governments.
When interest rates rise, as has happened in the United States, US Treasury bonds become less attractive as they lose value and pay less interest than other assets. This is why some central banks have sold part of their Treasuries and bought gold, which is not affected by interest rates.
In addition, when interest rates rise in the United States, the dollar strengthens against other currencies, which hurts countries that have debts in dollars, such as many in Latin America. These countries have to pay more interest and more dollars for their debts, which reduces their investment and growth capacity.
For this reason, some political leaders, such as the president of Brazil, Lula da Silva, have proposed creating a new currency or using their own currencies to trade among themselves and reduce their dependence on the dollar. However, this idea is not so easy to carry out, since it requires great coordination and trust between the countries involved.
Gold can be a way to diversify reserves and protect yourself from fluctuations in interest rates and the dollar, but it is not a magic solution for the economic or political problems of the countries. Gold may shine, but it doesn’t talk or negotiate.
Gold is not a panacea for countries’ economic or political problems. Gold does not earn interest or dividends, but has a storage and transportation cost. Gold is also not easy to buy or sell in large quantities, as it can affect its price or arouse suspicion. AND gold does not guarantee the success or prestige of a nation, since it depends on many other factors.
Gold is a precious metal, but it is not a magic wand that guarantees victory. After all, it is a stone that has an arbitrary value. It is not an end of all problems.
Why is the dollar so powerful? Well, because it is the currency of the United States. The dollar has the advantage that the entire international monetary system is tailor-made for it. But not everything is rosy for the green ticket. There are others that want to take his place, such as the euro and the yuan. Above all, the latter, which is becoming strong in the oil trade and in infrastructure projects around the world. Will the dollar be able to withstand the onslaught? That will depend on whether the United States remains a trustworthy and stable country, or whether it is carried away by the follies of some of its leaders. For now, the dollar is still king, but it cannot rest on its laurels.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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