Bitcoin had its boom in 2018, but this year a different currency is hot: physical gold.
In the first half of this year, central banks bought $15.7B of gold — the largest increase in 19 recorded years of data.
So, why are global investors so giddy for gold?
Everyone wants to ditch the dollar…
The crispy American greenback is the world’s de facto global currency: Dollars make up 62% of all central bank foreign exchange reserves (dwarfing the #2 euro at 21%) and 90% of all foreign exchange trades.
But since dollar dominance damages other currencies during domestic downturns (see: the 2008 global financial crisis), other countries resist dollar dependence.
In 2009, China spearheaded an effort to replace the dollar with an International Monetary Fund-controlled global currency, but it never got off the ground.
Now, China and others are going for — or back to — the gold
The noblest metal is becoming the gold standard once again: Central banks bought 73% more gold in the first few months of this year than last, led by China, Russia, and Turkey.
That’s a return to normal, really: Nearly all global currencies were redeemable for gold before 1944.
But in ’44, during a play-date in New Hampshire, world leaders said “America has a sh*t ton of gold and seems stable, let’s just peg all currencies to the dollar. What could go wrong?” (I’m paraphrasing).
Of course, things got spicy: America killed the gold standard in the ’70s, leaving the world’s currency reserve backed not by gold but by blind confidence in Uncle Sam…
Since that led to inflation and volatility, gold never really stopped glittering as an attractive alternative — and when the world doubts the dollar, it goes for the gold.
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