Everyone is Hoarding Gold

The tiny nation of Kyrgyzstan has big plans. Caught between its giant trading partners, China and Russia, Kyrgyzstan is stockpiling gold. It wants to increase gold from 16 percent to 50 percent as part of its international reserve.

Tolkunbek Abdygulov of the Kyrgyz Central Bank has stated that any currency, whether dollars, rubles, or yuan, has become too vulnerable. The small mountain nation, with a population of 6 million, relies heavily on Russian and Chinese imports. With the possibility of global trades war on the horizon, Kyrgyzstan prefers to protect its financial stability by amassing gold. It suffered during the ruble devaluation in 2015, and it is turning to gold as a hedge against any renewed economic upheaval.

Kyrgyzstan is merely following in the steps of other, larger nations, such as Russian, India, and Turkey, who are also increasing their gold reserves. The U.S. and Germany both have reserves that are 70 percent of its central bank holdings. If there is a trade war, countries are prepared.

Gold has traded steadily and unspectacularly for the past decade, but looming tariffs and trade sanctions have pushed gold out of the doldrums and into the stoplight.

Kyrgyzstan, one of the few post-Soviet republics with its currency, has been buying gold since 2014. Abdygulov has kept the nation’s currency, the som, relatively steady and recognizes that stockpiling gold will serve as a hedge against inflation.

Kyrgyzstan is smart to worry. Following President Trump’s promise to institute tariffs on imports, Russian has sold off half of its U.S. Treasury bonds, more than $47 billion, in retaliation. At the same time, Russia’s central bank has increased its gold reserves to 62 million ounces, at a value of $80.5 billion, in an effort to diversify its reserves in view of possible geopolitical unrest. Russian is less interested in increasing return on its investments. The U.S. bonds yield a higher return than gold in 2018, but selling off the Treasury bonds lessens Russia’s dependency on the U.S. dollar. Russian’s hoarding of gold has long been viewed as an attempt to devalue the U.S. dollar as the reigning global currency.

China is another country that would like to see the U.S. dollar replaced on the global financial market. If China were to sell off its $1.18 in U.S. Treasury bonds, it could go a long way in accomplishing that goal.

Russia’s increase in gold holdings has made it a global gold powerhouse. It has triple the gold as a percent of GDP, or 5.6 percent of the world’s available precious metal.

This is a thought-out, long-term plan for Russia, and U.S. trade sanctions are only a part of the picture. With large gold reserves and a relatively small international debt, Russia has positioned itself as a strong global financial force. It not only wants to strengthen its own currency, the ruble, but it is preparing itself for the collapse of the U.S. dollar. The future won’t be the dollar vs. the ruble. It may very well be East against West, and East is in an extremely favorable battle position.