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China's central bank has also returned to the Added gold to its reserves. The country's gold reserves grew by 23 tons, and with that, China continues to strengthen its gold reserves. It was also reported that investment bank HSBC is now deploying blockchain in the gold market. What is the state of the gold price, why did China buy gold again and what does blockchain look like in the gold market?
In October, the Gold price show a strong recovery again. In the weeks leading up to October, the price fell slightly. This was partly due to rising interest rates, which made other asset titles more attractive. But in October, geopolitical turmoil erupted in Israel. In addition, central banks seem to be nearing the end of interest rate hikes. The ECB went off gas and the FED, the US central bank, also increased the interest Not last week. Investors expect the ECB to be one of the first central banks to cut interest rates again, according to the Reuters.
The price of gold over the past 12 months
The first rate cut could probably take place as early as April as inflation continues to fall and the central bank can support the economy with an interest rate cut. For example, the output of the German manufacturing industry fell by 1.4 percent in September compared to August. Higher interest rates and high energy prices, combined with a Shortage of staff, are causing a growing pessimism among our eastern neighbours.
The gold price also rose sharply in the first half of the year, due to the banking crisis in March and the high demand for gold from central banks. Last week it was reported in the news that China had a large share in this high demand. Over the past twelve months, China's central bank has been buying gold in every month, leading the group of central banks that have been buying gold since the outbreak of the war in Ukraine. On the website of Holland Gold we have written several times about the gold purchases of different countries.
In the first nine months of 2023, 800 tonnes of gold disappeared into the vaults of central banks. Of this, 118 tonnes were destined for China, according to an article by Kitco. It seems to be mainly a tactic to get rid of the dollar. Since the war in Ukraine, it has become clear that the dollar can be used as a solid weapon. This has already led to speculation about a new currency among the BRICS countries. That does not seem to be happening for the time being, but the fact is that some countries are opposing the dollar as the world's reserve currency.
Russia is now mainly embracing the Chinese renminbi. Three-quarters of trade between Russia and China is now paid for in renminbi, but Russia also uses the Chinese currency for a quarter of transactions with third countries. However, the transition from the dollar to local currencies will not happen overnight. In Indonesia, 80 percent of exports are still paid for in dollars, but in that country too, Measures to stimulate its own currency. The world also seems to be falling into blocs on the monetary front, with part of the world sticking to the familiar dollar, but other countries looking at alternatives.
It was also reported that the major bank HSBC is implementing blockchain in the gold market. This makes it easier to keep track of who owns what amount of gold, he wrote Bloomberg. The new system records the ownership of gold through tokens. Such initiatives have been launched before, such as by Paxos. However, this plan did not succeed at the time, so it was stopped after only a year. But now that a bank of HSBC's stature is adopting blockchain, things are changing. The bank is a major player in the gold market and holds large amounts of precious metal. Every day, 30 billion worth of precious metals are traded through the bank.
The London gold market is a market of enormous size. As much as $525 billion worth of gold is kept in the vaults in London. However, many transactions are still recorded by hand. The implementation of blockchain can make this process much easier. By using tokens, it is very easy to record how much gold a person owns. One token in this system is the equivalent of 0.001 troy ounces, or 0.0311 grams of gold.
Blockchain could be used more and more in the future. Not only for cryptocurrencies, but also by banks. For example, ABN-AMRO In January of this year, it was the first European bank to issue a digital bond on the public blockchain. These bonds were used to raise 450 thousand euros for a client of the bank. Blockchain could also be used in the foreign exchange market. For example, HSBC and Wells Fargo are already experimenting with a Shared Private Ledger to facilitate the trading of dollars, pounds and renminbi, the Financial Times. The fact that blockchain is used does not mean that cryptocurrencies are also involved in the transactions. Through blockchain, parties are linked to each other and transactions are settled, but that is done with fiat currencies.
But what else can we expect from the gold price? The World Gold Council (WGC) expects a further rise in the gold price if geopolitical tensions remain the same or increase further. A ceasefire is not yet on the agenda and an easy way out of the conflict also seems a long way off. The same applies to the situation in Ukraine, which has been going on for more than a year and a half now. The WGC also writes that the gold price could rise further if fears of a recession increase. Although the US economy is performing strongly, this is still the case in Europe not the case. Economist Han de Jong even called the events in German industry a A real disaster that is unfolding. Europe seems to have a significant headwind. So the outlook for gold is still strong, especially if there is a period coming in which central banks may start cutting interest rates again.
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