The strong rise in gold prices is a symptom of a changing world order and the beginning of a new era of conflict and insecurity.
Governments and central banks have long viewed the precious metal as a potential source of monetary stability and economic security, and this is still true today, writes Harold James, professor of history and international affairs at Princeton University, in an opinion piece published by Project Syndicate and quoted by Ziarul Financiar.
Gold is back in the international monetary system. Over 50 years ago, American President Richard Nixon “closed the gold window”, and the world overcame its obsession with precious metals. But now money is facing fiscal challenges and new technologies, and the price of gold is reaching historic highs.
Supporters of gold investments argue that the metal remains an ideal investment for long-term value preservation. But it is a mistake to think that gold is uniquely stable, writes the professor. Rather, its price measures a curve of dissent, with sharp price increases indicating a rush for safety in a world where other values are at risk.
The price of gold fell dramatically in the 1990s, when the end of the Cold War brought a new atmosphere of peace and stability. But it grew stronger after the financial crisis of 2008 and after the outbreak of the Covid-19 pandemic, and again this year.
Much of the increase in demand for gold is brought about by central banks. China, with relatively small gold reserves of 395 tons in 2000, now holds 2,260 tons. Remarkably, it substantially increased its gold stock in 2009 and 2015, landmark years for a world that was becoming more skeptical of globalization.
Russia and Turkey in turn began to accumulate massive stockpiles after 2015, and the same trend is also evident more recently in the European Union, where the Czech Republic and Poland have increased their reserves.
Security concerns are at the heart of the new gold policy, according to Harold James.
The search for “gilded” stability is thus a reaction to a changing world, reflecting a growing belief in the shaping of a new political order.
A century ago, with the world returning to the gold standard after the First World War, John Maynard Keynes described the metal as a “barbaric relic” because it was the currency of the conflict.
When political stability returns, the price of gold will fall, writes the professor. Meanwhile, governments and central banks that have invested in gold will have bought themselves protection in an uncertain world.
