“Central bank gold holdings have risen since the Global Financial Crisis (of 2008-9),” they write. Central banks have been stockpiling bullion over the past 15 years, more than making up for the net sales of the previous decade. Central banks worldwide bought more gold in the third quarter of 2022 than in any other quarter in 55 years, they report.

No, really. Fifty-five years.

The buyers have been the so-called emerging, developing (and, sometimes, ‘submerging’) countries such as Russia, China, India, Turkey, Argentina, Hungary and Belarus. Some 14 of them have hiked gold as a share of their reserves by more than 5 percentage points so far this millennium, the economists report.

Among the key reasons? Sure, gold is nice and shiny and, er, yellow. And it doesn’t rust. And it is popular in jewelry. And over long periods of time it seems to have held its value. And it used to be the only reliable money, back over the thousands of years when you couldn’t just go online and check the creditworthiness of a business partner or a government. Imagine trade along the Silk Road, from China to Constantinople, in the Middle Ages and the usefulness of gold as a common currency becomes obvious.

But those are only side issues today to the central banks loading bars in their basement.

“Gold is perceived as a safe and desirable reserve asset when countries are subject to financial sanctions and when financial investments are potentially subject to asset freezes and seizure,” the economists write. “The decision of G-7 countries to freeze the foreign-exchange reserves of the Bank of Russia [i.e., last year, after the invasion of Ukraine] directed attention to whether reserves might be held in another form better insulated from sanctions.”

Russia, they point out, sped up its stockpiling of gold after the crisis of 2014, when it attacked Ukraine and seized Crimea.

Actually, MarketWatch saw this happening as early as 2012.

And Russia, Iran and other countries subject to U.S. sanctions may now be talking about combining blockchain technology with gold to launch a digital currency to rival the dollar. The currency in question would simply be gold. The blockchain would operate as a ledger, allowing people to transact in gold without actually having to ship coins or bars around.

(That is how banking began: The first bank notes were simply claims on gold held in vaults.)

Actually, if you want to understand the underlying value of gold bullion as a financial asset, even today, just imagine for a second you’re Vladimir Putin.

You’re the Russian dictator, an international pariah, and nobody wants to know you, engage in any financial transactions with your banking system, trade with you in any way that could be tracked by the international community, or (let alone) own your country’s paper currency, the ruble.

If you want to buy something from them you can’t wire them money because your wiring privileges have been shut down.

On the other hand, you have about $140 billion worth of gold bullion in your central banking vaults, and you dig up another $21 billion or so worth of gold each year from your vast, mineral-rich country’s deposits.

And anyone will take that, for the simple reason that they can buy it and own it without being tracked, and they can easily turn around and sell it to someone else for the prevailing price, which is currently just north of $1,900 an ounce. All they need is some trucks or planes and some guards with guns—easy things to get hold of if you are an international arms dealer, say, or a sovereign government.

Gold is the only meaningful asset of which that is true. It is the only currency that isn’t controlled by any other country (as well as the only one that can’t be counterfeited). It is the only asset that pretty much guarantees financial privacy. It remains an asset tailor-made for money laundering, financial secrecy, or national financial independence.

Putin would have been in a much better position if he had converted all of his country’s foreign exchange reserves to gold years ago—and stored the bullion under the Kremlin.

Maybe this is why gold has risen in value during the crisis of the past three years, and why it rose last year against almost every national currency. Gold broke even in 2022, earning an effective return of zero. That far outpaced almost everything else, including stocks and bonds. But that understates gold’s performance, because we are viewing it in U.S. dollars, and last year the dollar boomed. Gold rose 6% in euros, 12% in British pounds and 14% in Japanese yen. “Gold in nondollar terms is at all-time highs around the world,” says Josh Strauss, partner at money manager Pekin Hardy Strauss in Chicago. The Appleseed Fund
APPLX,
+0.22%,
which he co-manages, is currently 15% invested in gold.

To all the above arguments for bullion, he adds some others also in the news. Such as the showdown in Washington between the Republican-controlled House of Representatives and the Democratic Biden administration over the U.S. debt ceiling, which could threaten the stability of U.S. Treasury bonds and the U.S. dollar as the world’s reserve currency. Or the collapse of cryptocurrencies, which for several years had attracted a lot of the hype and attention that a generation ago would have gone to gold.

Those who thought their digital Monopoly money was “digital gold” have now discovered in some cases that it hasn’t just collapsed in value, but vanished altogether.

Strauss invests in gold through the Sprott Physical Gold Trust
PHYS,
-1.13%,
where your investment is allocated to individual bars of gold. (You can, if you wish, actually take possession of your bullion). The fees are 0.41% a year.

There’s no clear answer on the subject of gold.

You can make the argument that it’s a useless lump of yellow metal, generates no cash flow, and has no more relevance to today’s world than, say, sun worship or the divine right of kings. Or you can point out that it seems still to be the only liquid financial asset you can use outside of the regulated international financial system. Take your pick.