None of these arguments therefore offers a satisfactory explanation. Geopolitical risks remain: the situation in the Middle East has indeed worsened, while the situation in other critical areas has remained largely unchanged. However, in the context of these conflicts, some countries have probably been increasingly inclined to invest their foreign exchange reserves in gold rather than in U.S. government bonds, the availability of which may be limited at any time by the U.S. government. It is therefore not surprising that the central banks of many countries have long preferred interest-free gold over US Treasuries as a reserve currency, and have significantly increased their gold reserves again this year.
Who buys gold?
The demand for gold for pure investment purposes, which is reflected in ETF positions worldwide, declined sharply until May (net sales of 157 tonnes). However, at that time, gold was already trading above $2,400. Since then, investors have again purchased around 90 tonnes of gold on a net basis, but this still implies a negative balance of around 70 tonnes for the current year.
There must therefore be other buyers on the market to cause such an increase in the price of gold. First of all, it is likely that these are purchases of physical bullion which are not recorded in central bank statistics. For example, it is possible that government institutions want to reduce their dependence on the United States or even that households have made gold purchases.
The minefield of American public debt
Gold does not experience hegemonic or counterparty risk. No one outside the United States needs to fear that the U.S. government will confiscate their gold holdings (provided they are not stored in the United States). The high and growing level of public debt in the United States and many other countries will be an important reason for large investors to concentrate more of their gold reserves.
Although the risk of sovereign default is only theoretical in most countries, unsustainable debt policy undermines the long-term value of the currencies in which debt is serviced. There seems to be a long-term correlation between the evolution of sovereign debt and the price of gold. On September 26, gold reached its previous high of $2,672, which can also be interpreted as the anticipation of a further increase in public debt.
U.S. government interest spending alone will reach more than 3% of GDP this year. It is possible that the sharp rise in prices observed in recent months will be followed by a further pause until the next increase in public debt. At any rate, gold remains an important anchor of value in a world more and more fragile.
