Currently, governments all over the world are aggressively increasing gold reserves over paper money. Countries like China, Russia and India, are actively adding to their gold reserves.
Sign 2 – Countries Stockpile Gold Reserves
For instance, Russia increased its gold holdings from 37.6 million ounces to 38.2 million ounces, albeit it’s collapsing currency.
Some financial experts predicted that Russia would liquidate its gold reserves for dollars in order to resuscitate its weakening currency. However, the Russian government is acting on the contrary by replenishing its gold reserves.
Same case applies to various foreign countries. The governments are stocking their wealth in central banks in form of gold as opposed to the traditional dollars. This move reveals the sentiments of foreign governments towards the dollar. It might be an indication that they are worried about the position of the dollar as a universal currency. In this regard, they are choosing the safe alternative, which is gold.
Furthermore, this might be an indication that some countries are moving back to gold standard in order to strengthen their currencies. Apparently, Russia strongly supports the idea because it is struggling to stabilize its currency. They are replenishing their gold reserve to revive the collapsing currency. When they improve their gold reserves, they have a better chance of reviving their weak currency.
Sign 3 – Gold Reserves Fuel the Demand for a Currency Alternative
Investors, corporate and consumers have also joined the bandwagon. The stakeholders have shown interest in gold as evidenced by clearing houses.
In fact, investment clearing houses have begun accepting gold as collateral. Clearing houses act as a mediator between tow investing parties, and they act as collateral until the final processing of the deal. Initially, clearinghouses never accepted gold as collateral. Instead, they used cash and bonds. However, the financial crisis changed the rules and, currently, clearinghouses are accepting gold.
Moreover, small investors are also focusing on other alternative of the currencies. They are embracing gold reserves because of gold’s ability to maintain value, despite the state of the economy. In addition, gold reserves have proved to be immune to the volatile currency fluctuations because it is a commodity. Therefore, it maintains its value globally.
Most importantly, the need for an alternative currency has triggered the rise of crypto currencies. For example, there is a recent boom in Bitcoin, which is a crypto currency. This move reveals how people have lost faith in their countries’ ability to control the currency.
Essentially, demand for gold reserves can only become higher. The growing trend will only increase the value of gold, especially if Russia decides to convert to gold standard. Consequently, the gold prices will rise because of the current low supply of this commodity.
The current financial crisis has led to this change. A few years ago, no one would have predicted the current situation whereby countries use gold reserves as their standard currency. However, the current economic situation is unique, and it calls for unique solutions.
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