Why countries turn to Gold?

From the perspective of business strategy, gold holdings is an essential tool of safeguarding wealth & security for countries in global south especially ASEAN. They have to look much deeper because in today’s chaotic conditions tectonic shifts in geoeconomics could overwhelm them. So turn to gold!

Whether beset with gloom or bloom countries are now rushing to increase their gold holdings. This is specially so, in Asean group. There, top three holders of gold render meaning and purpose for my argument. Singapore the top notch holder of gold at 236.6 tonnes views gold as more of status symbol than economic security. Thailand the next Biggy with 234.5 tonnes of gold does so with oversight on her political and economic stability. Indonesia third in line has 159 tonne gold for just in case.

These viewpoints apart holding gold in vaults of central bank of countries throughout Asean or for that matter even the entire globe arises due to four specific reasons:

The primary reason rests on the aspect of sense of security gold can provide.  Managing economic uncertainty or perhaps upheaval is a sine quo non for every country and gold is deemed always as safe-haven. This makes gold being stored inshore and/or offshore in foreign banks in order to firstly facilitate trade related remittance and the other is to diversify storage locations to minimise risk in holding gold in one place. A cautionary tale in this regard is what happened during the Iraq invasion of Kuwait when the entire central bank gold holdings were looted.

Coming in close second, hedging against a variety of geoeconomics concerns preoccupy financial authorities who are driven by the fear of devaluation of foreign currency on one side and the depreciation of value in domestic currency to opt for more gold holdings. Additionally, gold acts as a bulwark against both domestic and global inflation. A finer point is that there is no counter party risk in gold which might arise in case of debt securities held by a central bank originated by issuers from abroad.

The next but much more ostentatious reason is the status symbol gold broadcast as regards to the holder’s wealth and prosperity on one side and the measure of economic resilience on the other.

Fourth and final count for having gold in reserves is the ever-increasing price of gold in the world market place. For example gold was sold at US$ 1,700 per troy ounce in 2019 which is now quoted around US$ 2,800.

Yet, gold is still a commodity. It is being bought and sold regularly. While Thailand and Indonesia are hardly seen as sellers, Singapore alternates. She buys sometimes and sells when the price is good to make a trading profit. Many wonder why Singapore does this. The short answer is navigating business strategy amid geoeconomics. Make hay while the sun shines!

    

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist