Gold prices are down on Wednesday morning. The price of gold is trading at $2654.08, down $9.15. The price of silver is trading at $31.98, up 58 cents.
Gold’s role as a global reserve asset is growing significantly, with Bank of America reporting that it has surpassed the euro to become the second-largest reserve asset after the US dollar. Gold now represents 16% of global bank reserves, while the dollar’s share has decreased from over 70% in 2002 to roughly 58%. Eastern hemisphere central banks are diversifying away from the US dollar and euro, buying gold and yuan instead. Notable gold buyers include Poland, Turkey, and several African countries, with Poland insisting on physical delivery to its central bank.
The potential for gold to overtake the dollar as a reserve asset is increasing, especially if the BRIC/Eastern Hemisphere Alliance countries establish a gold-backed trade currency. Russia has announced plans to significantly increase its daily gold purchases, which may be related to this possibility. The Federal Reserve faces pressure to cut interest rates, but doing so risks a rapid sell-off in the dollar. A declining dollar could accelerate the shift away from its use as a reserve asset and make it more difficult to attract foreign interest in funding additional Treasury debt. Furthermore, rate cuts could push real interest rates further into negative territory, potentially fueling inflation.
