Don’t sell the gold, store it!

It is heartwarming to learn that the delivery of gold to sole-gold-buyer Fidelity Printers and Refiners went up 55,5% last year to a total of 29 629,61 kg from the 19 052,65 kg delivered in 2020. But what to do with the gold is the main question.

Around the world, according to a recent report by NikkeiAsia, central banks are shifting from dollar to gold; they are increasing the gold they hold in foreign exchange reserves.

Central banks have built up their gold reserves by more than 4 500 tonnes over the past decade, according to the World Gold Council, the international research organisation of the gold industry.

As of September last, the reserves totalled roughly 36 000 tonnes, the largest since 1990 and up 15% from a decade earlier, according to NikkeiAsia.

This is because they no longer feel they can rely on the US dollar whose value has flopped sharply against gold due to oversupply and other factors.

Central banks around the world are continuing the shift to gold, reflecting the global concerns about the dollar-based monetary regime. They argue that gold is not directly linked to any nation's economy and can withstand global unrest in financial markets.

The National Bank of Poland, for example, is one such apex bank which is building up its gold reserves. It bought some 100 tonnes of gold in 2019 and continues to purchase the yellow metal, according to its governor, Adam Glapinski.

Most emerging economies are following suit. In the first nine months of 2021, Thailand bought some 90 tonnes, India 70 tonnes and Brazil 60 tonnes, according to the NikkeiAsia report.

The report says, unlike US government bonds and other dollardenominated assets, gold bears no interest.

The central bank of Hungary tripled its gold reserves to more than 90 tonnes last year because the metal is free from credit and counterparty risks.

Countries trying to free themselves from reliance on the dollar because of political confrontations with the US have for long been piling gold in their central banks.

These countries include Russia which kind of set the trend since the breakup of the Soviet Union. Zimbabwe is in a situation similar to Russia and had better take a leaf from its book.

Emerging economies such as Zimbabwe tend to be exposed to plunges in the value of their currencies and therefore should be keeping their gold instead of selling it. Zimbabwe is a country that produces phenomenal quantities of gold annually and should therefore emulate Eastern European countries which are of limited economic scale but have been noticeable buyers of gold.

But unlike these countries, Zimbabwe does not have to buy the gold as the country still has limitless amounts of it.

The Reserve Bank of Zimbabwe must really sit down and reflect on why Zimbabwe gold is being bought like hot cakes around the world.

Syndicates have formed around the world to purchase and smuggle the precious metal out the country. It is estimated that the country loses about 100 kg of gold annually through smuggling. The smuggled gold ends up in the vaults of central banks around the world that have seen the light.

There is no end in sight of the thawing of relations between Zimbabwe and the US which went cold two decades ago.Yet Zimbabwe continues its overreliance on the US dollar as a currency of choice.

Studies should be done, if they haven’t been done already, on how economies that have shifted from reliance on the US dollar to gold are using their gold to hedge their development programmes and leverage the growth of their economies.