India just gave the UK a massive gold shock! India’s central bank brought more than a hundred tonnes of gold from the UK over the last week back to the country. This gold was kept in the safe custody of the Bank of England and the Bank for International Settlements. This is the second gold shock for UK this year. Earlier in May, India had flown back another 100 tonnes of gold.
With this move, India’s current total gold reserves stand at 854.73 tonnes of which 500.5 tonnes is held domestically.
Now, let’s shift our focus to China.
The People’s Bank of China (PBoC) has also been buying more gold than all other central banks combined for last three years now.
The last two years have seen China purchase more than 2,800 tons of gold from overseas locations, which is about a third of the stockpiles held by the United States’ Federal Reserve. Experts believe China is unquestionably driving the price of gold around the world.
Let’s not forget that India and China, both are BRICS member nations; who are trying to put up a joint front against Western hegemony in financial institutions. Both India and China have also learnt how Russia was able to evade thousands of sanctions imposed by the West using gold.
Mind you, Russia is the world’s second-largest producer of gold, at 320 tonnes annually. China is the number 1 producer. When Russia’s war with Ukraine began two years ago, Russia pegged its currency, the ruble, to gold, and 5,000 rubles will now buy an ounce of pure gold. The plan was to shift the currency away from a pegged value and into the gold standard itself so the ruble would become a credible gold substitute at a fixed rate. Thanks to this golden move, Russia was able to rescue its currency, and eventually the economy.
This has inspired more BRICS nations to buy more gold. The UAE, for example, imported 96.4 tonnes (US$6.2 billion) of Russian gold two years back following the British sanctions.
You see, Gold is also called the doomsday currency. Nations are buying gold against a grim backdrop of rising tensions with the US, including an escalating trade war and US-led sanctions against China and Russia.
For example, China has been aggressively selling off its holdings of US Treasury securities as it seeks to effectively substitute its massive USD reserves for more gold and ultimately boost the diversification of its reserves.
The main motivation of the PBOC is to be less dependent on the US dollar and to be less exposed to US sanctions.
BRICS bloc has been clear about its desire to not only unleash new opportunities for trade and investment among its member nations but also to almost exclusively utilise local currencies in bilateral trade at the expense of the US dollar.
Ongoing discussions of a BRICS currency that is backed by gold may also explain the fervent buying trends of the precious metal in recent years. The World Bank notes that the aggregate central-bank holdings of gold within the BRICS+ nations represented nearly 17 percent of all the gold held in the world’s central banks, with Russia, India and China sitting within the global top 10.
So, basically it’s a gold war going on between BRICS and the West. And since most of the gold producers and consumers are in the BRICS bloc, it’s not hard to imagine which side is going to gain the most out of this tussle.