Plus: UFOs aren't real
Hi Intriguer. We humans have been using, trading, and coveting gold for a few thousand years. And yet, if you stacked together all the above-ground gold in the world, the resulting cube would only measure around 22 metres on each side.
For today’s lead, we’re drilling down into the 17% of that gold that’s currently sitting in central bank vaults all around the world.
But not just any vault. We’re looking at the vault that’s now growing its gold reserves faster than any other: the People’s Bank of China.
– Jeremy Dicker, Managing Editor
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Biden vs Netanyahu. US President Joe Biden has accused Israeli Prime Minister Benjamin Netanyahu of “hurting Israel more than helping Israel” with his operation in Gaza, adding “they cannot have 30,000 more Palestinians dead as a consequence of going after [Hamas]”. Biden also reiterated Israel’s right to defend itself, adding he was not going to draw a “red line” and stop weapon exports. Later, Netanyahu branded Biden’s assertions as “wrong” and vowed to go on with the controversial planned Rafah offensive.
Portugal votes in early election. Portugal’s centre-right party, Democratic Alliance, has claimed victory in Sunday’s elections to end eight years of Socialist Party rule, though no party won a majority in parliament. Further to the right, the Chega party, under the leadership of former football pundit André Ventura, quadrupled its seats in parliament. The snap election was called after the former prime minister suddenly stepped down last year amid a corruption investigation.
Countries evacuate staff from Haiti. The US, Germany and others have now airlifted their non-essential embassy staff from Haiti, as the security situation there worsens. Prime Minister Ariel Henry has not yet returned to the country after armed gangs prevented him from landing there last week.
Pope’s Ukraine comments. Pope Francis has sparked anger in Ukraine and beyond after suggesting the country should have the “courage of the white flag” and enter negotiations to end the war with Russia. Ukraine’s foreign minister hit back, tweeting “Our flag is a yellow and blue one. This is the flag by which we live, die, and prevail. We shall never raise any other flags.”
Ex-Honduran president guilty of drug trafficking. A US jury has found Juan Orlando Hernández guilty of conspiring to bring cocaine into the US and transforming Honduras into a “narco-state” during his time in office (2014-22). Once seen as a strong US ally, he now faces a life sentence in a US prison.
TOP STORY
Why is China buying so much gold?
Canva AI prompt: world gold reserves
China’s central bank, the People’s Bank of China, bought gold again in February, lifting its reserves for the 16th straight month. This comes after China imported record amounts of gold last year – nine times the value it imported in 2020.
So what's going on?
For a metal we've been trading for thousands of years, the gold market is still surprisingly complex, but you can divide demand broadly into three main categories: consumers, investors, and central banks.
And China is seeing more demand across all three of these right now.
1) Consumers
Folks in China have been buying more gold partly for fun reasons, like celebrating Covid-delayed weddings, or ringing in China's year of the dragon (when dragon-themed gold products are seen as auspicious).
But there are also less fun reasons at play – local bank deposit rates remain low, so consumers are buying more gold jewellery as a way to store wealth, bringing us to…
2) Investors
While China's gold jewellery purchases jumped 10% last year, its demand for bars and coins (i.e. for investment) spiked 28%.
Investors in China, like everywhere else, see gold as a safe haven in turbulent times. But in China's case, there are additional doubts right now around its economic recovery, worrying deflation, plus its parallel and persistent slumps in both real estate and stocks. That all makes gold an even more attractive option.
And that brings us to…
3) The People's Bank of China
The People’s Bank bought more gold (225 tonnes) last year than anyone else, but the real figures are higher – China likely uses state-owned enterprises and other bodies to buy and hold its gold, too.
And China’s central bank has a few reasons to buy gold right now.
First, it's trying to reduce its exposure to – and reliance on – the US dollar. Beijing saw how Washington used the dollar’s reserve status to seize assets and impose sanctions on Russia. So as China’s own ties with the West have frayed, it’s arguably diversifying away from the dollar to insulate itself against similar pressure.
Second, China continues to record massive trade surpluses with the rest of the world, and it needs somewhere to stash all that cash.
Third, China – like every country – needs reserves to help ride out economic and currency fluctuations (its yuan slid to a 16-year low last year).
Fourth, gold is still a relatively small proportion of China’s total reserves, at around 4%. To put that in perspective, the world average is ~15%, and in the US it’s ~75%. So China might also just be playing catch-up here.
And finally, many would say that shifting some assets into gold has simply been a good investment lately, particularly as government bond markets struggle.
So, just like for many of China’s (and the world’s) consumers and investors, gold makes a lot of sense for the People’s Bank right now.
INTRIGUE’S TAKE
With all this talk of China and gold, it’s easy to forget that China still relies heavily on the US dollar. Even China’s infrastructure loans via its Belt & Road Initiative are mostly in dollars. And if the People’s Bank decides to sell its gold one day? Yes… most gold globally is still bought and sold in US dollars.
The data (limited as it is) suggests that while China might be buying more gold and gradually reducing its stash of US treasuries, US assets still comprise more than half of China’s total reserves, roughly the same as a decade ago. That’s because, in addition to gold, China has also been hoovering up other US assets like agency debt (issued by bodies like Freddie and Fannie).
So, why so much attention on China’s moves here? It’s partly because, for such a closed system, there’s a tendency for outsiders (and even insiders) to fill the information vacuum with intriguing motives, like perhaps an effort to tank the US treasuries market – but something like this would harm China itself given its own massive US treasuries holdings (~$816B).
So maybe what we’re trying to say is that of course, countries optimise their reserves out of naked self-interest. But even at our most self-interested – hoarding vast piles of gold in a vault somewhere – we’re all still deeply interconnected.
Also worth noting:
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China’s total gold reserves are now at around 2,257 tonnes, behind the US (8,134t), Germany (3,353t), Italy (2,452t), France (2,437t), and Russia (2,300t).
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The spot price for gold hit a record high of $2,141.59 last week. Bitcoin hit another new record above $70,400 earlier today (Monday).
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Beyond China, expectations of rate cuts by the US Federal Reserve have also driven gold demand. Gold doesn’t pay interest, making it relatively more attractive as rates drop (and vice versa).
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MEANWHILE, ELSEWHERE…
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🇭🇰 Hong Kong: Authorities have published a draft of Hong Kong’s new security law, which includes proposals to apply life sentences for insurrection and treason, and increases the time authorities can detain people without charge from two days to two weeks. Debate on the draft legislation began last Friday, but the bill is expected to pass easily.
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🇺🇦 Ukraine: President Volodymyr Zelensky has moved to appoint Valery Zaluzhny, whom he recently removed as head of the Ukrainian armed forces, as ambassador to the UK. Ukrainian polls suggest Zaluzhny, who speaks English, would be a real contender if he ever decided to run for president.
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🇦🇺 Australia: Australia has offered help amid reports that Malaysia is looking to restart maritime exploration for the remains of Malaysian Airlines flight MH370 on the flight’s ten-year anniversary. The Malaysian government is currently in talks with a US robotics company which claims to be able to find the downed plane.
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🇺🇸 US: The US embassy in Russia warned on Friday it had received “reports that extremists have imminent plans to target large gatherings in Moscow”, and urged US citizens to avoid large crowds. The warning came just hours after Russia’s security service announced it had foiled an attempted ISIS attack at a synagogue, though it’s unclear if the two developments were linked.
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🇮🇱 Israel: UN human rights chief Volker Turk has said Israeli settlements in the occupied Palestinian territories have expanded by a record amount, eliminating any practical possibility of a Palestinian state. Late last month, the US reversed an earlier US policy by declaring the expansion of Israeli settlements “inconsistent with international law”.
EXTRA INTRIGUE
Your weekly roundup of the world’s more curious news
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A cyberattack targeting Duvel beer has halted production across four sites in Belgium and a fifth in Kansas City.
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A German man has received 217 doses of the Covid-19 vaccine “for private reasons”. His medical extravaganza has apparently produced no side effects.
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A Kenyan businessman has had the shock of his life when he opened his shop to find a hyena hiding under the counter.
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A US man who crashed his snowmobile into a parked Black Hawk helicopter is suing the federal government for $9.5M in damages.
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And airport workers have found an endangered Red Panda plus 87 other exotic animals in travellers’ checked luggage in Bangkok.
CHART OF THE DAY
The Pentagon is attempting to set the record straight once and for all: it says it has no evidence of alien life, and it’s not covering up any such evidence. The Congress-mandated report released Friday instead suggests that most UFO sightings since the 1960s were likely the result of US military tests.
So… we grew up watching 11 seasons of the X-files for nothing?
DAILY POLL
Which of the following do you think is the best asset to hold in times of crisis? |
Last Thursday’s poll: What do you think the international community should do to address the Haiti crisis?
🟩🟩🟩🟩🟩🟩 1️⃣ Pressure Ariel Henry to resign and send a peacekeeping force (64%)
🟨⬜️⬜️⬜️⬜️⬜️ 2️⃣ Pressure Ariel Henry to resign and no intervention (17%)
🟨⬜️⬜️⬜️⬜️⬜️ 3️⃣ Keep supporting Ariel Henry and send a peacekeeping force (11%)
⬜️⬜️⬜️⬜️⬜️⬜️ 4️⃣ Keep supporting Ariel Henry and no intervention (4%)
⬜️⬜️⬜️⬜️⬜️⬜️ ✍️ Other (write in!) (4%)
Your two cents:
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1️⃣ A.W.K.B: “Haiti needs both new leadership and international aid. A restructuring of Haiti's government into a parliamentary system wouldn't hurt, either.”
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✍️ T: “Don't support anyone and get out. All previous attempts have failed, with the countries who try coming out looking bad.”
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✍️ R.O: “The current international force offered by Kenya is grossly inadequate to respond to the situation in Port au Prince. The Haiti police barely function and are deeply entwined with the various gangs. It will be a long road out of this quagmire for the Haitian population, no matter which path they take.”