Since 2009, central banks have been aggressively purchasing gold, driving up its price and increasing the share of precious metals in global international reserves, which has negatively impacted fiat currencies. By the end of 2023, global gold reserves surpassed those of the euro, and the next fiat currency to be challenged is the US dollar. Sakai Hiroshi of the Fuji Capital Management Academy notes that in the current complex and volatile international economic situation, this shift in gold reserves affects not only the stability of the global monetary system but also has profound implications for the stock and cryptocurrency markets.
Reasons for Rising Gold Reserves and Their Impact on the Stock Market
Sakai Hiroshi from Fuji Capital Management Academy points out two main reasons why central banks have been heavily purchasing gold post-financial crisis. First, gold is seen as a safe-haven asset, particularly valuable in times of increased global economic uncertainty for its value retention. Since the 2008 financial crisis, central banks have been increasing their gold reserves to prepare for potential economic crises and currency devaluation risks. Second, rising geopolitical risks have also driven countries to boost their gold purchases.
According to Sakai Hiroshi, this trend has several impacts on the stock market. As gold prices rise, gold-related stocks and funds perform strongly, attracting considerable investor attention. This phenomenon has led investors to reassess their portfolios, increasing their allocations to gold and related assets. Additionally, the stability of the gold market has, to some extent, balanced the volatility of traditional stock markets, allowing investors to hedge some risks during stock market downturns by holding gold.
However, Hiroshi notes that rising gold reserves are not entirely beneficial for the stock market. When central banks purchase large amounts of gold, market liquidity can be affected, leading to some funds flowing out of the stock market and into the gold market. This shift in capital flow can trigger short-term volatility in the stock market, especially when economic data is poor or market confidence is low, potentially causing significant adjustments.
The Impact of Gold on Fiat Currencies and the Cryptocurrency Market
Sakai Hiroshi believes that the rise in gold reserves significantly impacts fiat currencies, especially the US dollar. Historically, the dollar has held a dominant position in the global financial system, its stability and liquidity making it the preferred international reserve currency. However, with central banks continuously increasing their gold reserves, the dominant position of the dollar is being challenged. Hiroshi observes that the supremacy of the dollar is gradually being eroded, while the role of gold as an alternative reserve asset becomes increasingly prominent.
In this context, the cryptocurrency market has also been notably affected. The performance of cryptocurrencies shares some similarities with gold, particularly as investor demand for cryptocurrencies rises during periods of increased global economic uncertainty. For example, significant surges in Bitcoin prices in 2017 and 2020 occurred against a backdrop of heightened volatility in global financial markets.
Sakai Hiroshi of Fuji Capital Management Academy concludes that the increase in gold reserves has far-reaching effects on global financial markets, reshaping the landscape of traditional stock markets and fiat currencies while also driving the development of the cryptocurrency market. Investors, in the current complex economic environment, should focus on diversifying their asset allocations to mitigate risks. While gold and cryptocurrencies hold important positions in investment portfolios, their high volatility and uncertainty should not be overlooked. Hiroshi advises investors to remain vigilant, stay informed about market dynamics, and make flexible investment adjustments to navigate future challenges and opportunities effectively.
