- WHAT IS THE CONNECTION BETWEEN THE CHINESE AND THE PRICE OF GOLD?
In 1933, American President Franklin D. Roosevelt fixed the price of a troy ounce of gold (31.1 grams) at 35 dollars. American President Richard Nixon broke this link between the dollar and gold in 1971. Since then, the price of gold can fluctuate freely. Yesterday morning, it reached a record level of 2,300 dollars. In the hours that followed, the price slightly decreased. It is likely that the Federal Reserve, the American central bank, encouraged investors to buy gold. It hinted on Wednesday that there would be further interest rate cuts later in the year. Traditionally, gold moves inversely with US interest rates. So if they fall, this means that the price of gold could continue to rise. In fact, central banks have been pushing up the price of gold for months. "Especially countries that do not belong to the American camp, such as China or Russia, do so," explains Jan Longeval (Kounselor Consulting and Vlerick Business School), author of the book Heavy Metal on gold. China, for example, holds large reserves in foreign currencies, especially dollars, due to its structural trade surplus. However, these dollars are in foreign accounts. "Suppose now that China invades Taiwan tomorrow, then the West will immediately freeze or confiscate those Chinese dollars," explains Longeval. So gold is an interesting investment for the country. But recent conflicts in Ukraine and Gaza are also driving investors towards gold, just as the coronavirus pandemic did. It is a commonly heard saying that gold is a "safe haven". "It is usually people who distrust the financial system who buy gold," explains Longeval. "There are now many people who are watching with suspicion the heavy debts that governments around the world have accumulated. You can see gold as a kind of barometer of confidence in the financial system and imminent danger."
- WHY HAS GOLD BEEN A "SAFE HAVEN" FOR YEARS?
In fact, it's simple: because gold is a precious metal. Unlike silver, for example, gold cannot rust, bacteria have difficulty attaching to it, and it is therefore inherently valuable. "Moreover, due to its very high weight, it is very compact. It is thus an efficient form of portable wealth, for those who may need to flee in case of war," explains Longeval. "A kilo of gold is roughly the size of an average smartphone but is worth about 74,000 dollars." When buying a share or transferring money to a bank account, one must always keep in mind that the counterparty may go bankrupt. This is not the case for gold. The whole world believes it can retain its value. Finally, the World Gold Council estimates that 212,582 tons of gold have been mined worldwide. About two-thirds of this amount was mined after 1950. "This sounds like a lot, but it's about four Olympic swimming pools or a cube with edges of 25 meters," explains Longeval. "In short, gold is very rare. This helps to understand why this cube is worth about 15 trillion dollars (that's twelve zeros, PG)."
- IS BITCOIN BECOMING THE "NEW GOLD"?
Look up an article on bitcoin, the largest of cryptocurrencies, and you'll see an image of a gold coin with the bitcoin logo on it. Much of the vocabulary we use to describe bitcoin has also been borrowed from gold. For example, bitcoins are "mined". This is not by chance. The goal is to give the cryptocurrency the same aura as gold. Supporters of cryptocurrencies even describe bitcoin as the "new gold". To do this, they use many arguments similar to those advocating for gold as a safe haven. Gold and bitcoin share the same promise: an outlet for people who doubt the financial system. Moreover, the number of bitcoins is limited and therefore scarce. Longeval disagrees with believers. "Take now this argument of scarcity: that doesn't make something valuable. My nose hairs are scarce, but not valuable. That's the essential difference between gold and cryptocurrencies. Gold is beautiful, imperishable, intriguing, and mysterious. Bitcoin is a line of computer code. Cryptocurrencies are a lie."
- IS IT THE TIME TO SELL MY JEWELRY?
In recent months, Alexandre Convent, trading director of the Gold & Forex International exchange and gold office, and his colleagues have been exhaustedly slumping into the couch after a day's work. The reason? It's busy. "In the last three months, we've seen a wave of clients in our office," explains Convent. "It's not just us, but all over Europe." Initially, it was mainly people wanting to sell gold, but Convent has also seen many people wanting to buy gold as an investment for a week now. So is it the right time to sell gold jewelry? It could be, but you should always ask yourself whether it's fair - taken literally. The question is whether the weight in gold is worth more than the jewelry itself. Longeval explains: "A beautiful piece of gold jewelry can have a market value that is much higher than the actual value of the gold: that's what jewelers call fairness. So yes, you can melt down jewelry. But you risk melting down your fairness at the same time."
Article from Friday, April 5, 2024, published in "De Morgen"
