Why are central banks hoarding gold? | Counting the Cost

[Music] [Music] hello I'm Adrian Finnegan and this is counting the cost on Al Jazeera your weekly look at the world of business and economics this week central banks are hoarding gold at increasingly moving their reserves back home will the rush for the precious metal continue also this week fired over posts on his ex-platform well Elon Musk has told employees treated unfairly by their bosses that he's got their backs plus the textile industry is often called the backbone of Pakistan's economy but the sector is bearing the brunt of the nation's financial crisis it is precious and often serves as a safe haven a hedge against economic uncertainty an investment favored for its stability Traders investors and governments have often looked to gold in times of Market volatility 2022 was an exceptional year for the yellow metal demand reached its highest level in more than a decade central banks globally bought a staggering 70 billion dollars worth of gold that's the most in 73 years and now it seems the world is looking again to gold as a hedge against uncertainty for months banks have been selling off their gold stocks now they're back buying again the world gold Council says that purchases in the first half of this year were the highest on record the biggest buyers The People's Bank of China turkey India and the EU also ramped up their gold reserves while Russia has been stockpiling gold for the past year as it tries to circumvent the impact of Western sanctions so why do central banks like gold well the metal holds its value during economic turmoil unlike currencies or bonds its price actually tends to rise when the value of the US dollar Falls that encourages central banks to stockpile gold to diversify the reserves away from volatile currencies hedging against inflation is another reason why central banks hoard it the metal has limited Supply and tends to preserve purchasing power against Rising prices nearly one-fifth of all the gold ever mined is held by central banks the U.S has the biggest reserves many central banks sold tons of it during the covid-19 pandemic to shore up their economies gold reserves are kept in underground vaults or stored with central banks abroad including the U.S federal reserve and the bank of England joining us now from Singapore is Nicos cavallis who is managing director at Metal's Focus he's a global precious metals expert good to have you with us Nicos it was Russia's invasion of Ukraine and the subsequent sanctions that triggered last year's Gold Rush what's behind this year's pile into gold oh you know I think it's uh in many ways a continuation what we've been seeing for the last couple of years really crisis after crisis the expectation especially in the early part of the year the expectation that the Federal Reserve would be forced to cut rates a lot sooner than the reality has proven it to be the case that's what drove the price back above to two thousand dollars an ounce and uh look more generally um gold has basically proven its metal and a lot of investors are looking to it as a diversifier um and central banks have been continuing to buy or be it not as aggressively as last year and they're still in the bid are there any particular countries though that are that are leading this this Rush who's buying more gold than anyone else well look I mean uh naturally uh the countries that in terms of Reserve managers the countries that have been of the last decade really buying gold are developing nations uh Nations that have don't have Legacy gold Holdings as a result of being part of the gold standard um China Russia turkey have been being buyers although turkey not this year uh turkey uh in fact recently for various reasons but yeah um some of the European uh East European countries have been buyers in the last decade but yeah basically countries that for lack of a better word need to add to reserves because they're not already overweight like uh the Western ones are because what are the implications of this for the for for the Greenback the the US dollar the reserve currency of the world there's no doubt that there is a big dollarization uh on the way um and in fact it's been going on for uh quite a quite quite a long time it's not just in the aftermath of uh the war in Ukraine and the freezing of uh Russia central banks assets um the dollarizations have been going on since the early 2000s as banks have been diversifying against uh the de facto Reserve currency I think it's a bit premature to start making long-term projections as to let's say it's in significant swaming um and I think gold is also um you know it's it's part of that move but I think it's a little bit um we can't really look at gold as the principal driving force of this polarization but to what extent though are uh the the trend towards Rising interest rates across the world playing into this this this appetite for gold well perversely um gold tends to um go go tends to lose out when interest rates are rising right um because effectively higher interest rates mean uh uh higher risk free or a higher cost of carry uh so why buy gold which yields zero or um at best a few basis points when you can instead buy treasuries that give you four or five percent returns having said this um we've seen a dramatic change in the reasoning or the way the uh the attitudes of institutional investors they're a lot less sensitive to that and a lot more keen on gold purely because of uh its uh having proven uh in the last 15 years and numerous crises that we've seen we've gone through that it's a very solid successful diversifier all right because I'll be back with you in just a moment a growing number of nations are repatriating their gold after a freeze on Russian foreign assets separately Venezuela's government has recently lost an appeal to gain control of nearly 2 billion dollars in gold held in the UK the bank of England refused to release Venezuela's assets citing doubts over the legitimacy of President Nicolas maduro's win in 2018. the nation's gold reserves fell by nearly 12 percent in the first half of the Year down to 61 tons because Russia's gold reserves are stored very much at home other central banks though are pretty worried aren't they because as we can see in the case of Venezuela it's it's easy to freeze gold assets that are held abroad yeah of course look um traditionally um as a central bank you would want to keep as much gold as um a big chunk of your gold Reserve in London because that's where you could uh basically mobilize it lend it out or if you wanted to sell it it would be a lot easier to sell it there when you were if you were adding to your reserves it would be a lot easier to just add to your local London account um but as you very rightly pointed out the importance of having at least portion of your reserve home or away from the potential interference of um Western governments Western uh powers um is uh it is you know he's becoming very apparent and I think the freezing of Russian Central of the Russian Central bank's assets in the aftermath of uh uh you know the Ukrainian the invasion of the Ukraine um has you know Amplified these sentences okay um all right and what about what about Venezuela Nicos I mean what are the chances of Venezuela unlocking its assets its gold assets held abroad in the near future well it doesn't look very likely right I mean uh the uh the bank of England is not budging um and you know frankly this sort of why we're unlikely to see massive sales from um the Venezuelan Central Bank because as you very rightly pointed out about more than half of its uh Holdings are now um effectively locked away and cannot be touched okay let's get back to the weather in the future it wins um yeah yeah let's get back to the market you you mentioned the prices are hovering around what two thousand dollars an ounce uh right now how much further do you think well no it's uh it's it's now closer to 19 1900 it above two thousand uh earlier in the year all right that's fine but but are we are we set to see those highs again any time in the near future and look we're not about giving Financial advice on this program but but should the likes of me and anyone watching be thinking about investing in gold right now yeah look um we are Asbury pointed out we are not there to give investment advice but what we can say is that we can see investors are still interested in Gold um you know even though the Persistence of high interest rates is a headwind for the price and we could see lower prices it's you know we can't rule out that possibility we still see very uh strong interest in gold and that offers a very healthy very important support of the price because it's been great to talk to you on counting the cost many thanks indeed for being with us thank you Adrian all the best now the iconic blue bird logo is gone and Twitter is now rebranded as X Elon Musk is no stranger to making news this time for outlining his vision for the platform formerly known as Twitter part of his plans include making the social media site a Haven for free speech in a recent announcement the billionaire offered to foot the bill for users to sue their bosses if they think they've been treated unfairly for posting on X and he says there's no limits to those funds despite plunging advertising revenues Al jazeeras Victoria gatenby reports it's one of the world's most used social media platforms now it's billionaire owner Elon Musk says ex formerly known as Twitter will pay the legal bills of users who've been treated quote unfairly by employers because of posting or liking something on the site so what's behind this announcement at a time when his social media site is struggling he's trying to attract attention to himself he's doing what he always does which is seek probability without actually necessarily having any any intention I don't think of following through on it because the actual logistical implications of how you would do this are just out of it as well Elon Musk bought Twitter last year for 44 billion dollars turmoil followed after he fired half the workforce since his takeover the company has lost half its advertising Revenue in July the logo changed musk said it was part of his vision to use the app for multiple purposes including audio video chatting and payments from a brand or business point of view it's completely irrational it's probably the final um strike in the complete unwinding of Twitter uh and likely gonna be good for Elon Musk because now people will be talking about his ex Vision not how much money he's going to be losing on Twitter mosque is referred to X as the so-called everything app powered by artificial intelligence pushing it closer to Asia's so-called super apps WeChat in China is one of the Region's biggest platforms it's used as a One-Stop app for millions of users daily needs well beyond just messaging musk is also facing competition from an old adversary Mark Zuckerberg's meta owner of Facebook launched a rival platform last month called threads musk says monthly uses of X reach what he called a high of more than 540 million in July he says there will be no limit to funding users legal bills Victoria gatenby for counting the cost to discuss all of this joining us now from Berlin is Frederica Carlton who's a tech expert a tech policy expert good to have you with us sir Frederica look is Elon Musk serious here should bosses be worried or is this just a publicity stunt let's really see this for what it is it's a publicity stunt Elon Musk has provided no details whatsoever about what unfairly treated means he didn't provide any information for how people can get in touch I think this is a distraction from the real and serious problems that the company is facing yeah I mean and talking about those serious problems I mean how on Earth could could he fund this I mean you know there's no way that he can pay legal expenses which could run into millions and millions if enough people came forward exactly I think it doesn't even Merit a more detailed discussion it's a it's a distraction similar to the the fist fight that he announced with Elon Musk and it's a distraction from the problems that the company is facing people are leaving on mass a study has shown that the majority of Americans who were on Twitter have sort of reduced their activity or are thinking about leaving in the last 12 months so that's a real serious problem that the the company is facing and then the other one is since Elon Musk took over harassment incitement to violence have skyrocketed on the platform and that's a problem for a company that wants to be a trusted Public Town Square the center for countering digital hate published research showing that hate speech and disinformation had been spreading like wildfire on the platform under musk's ownership I mean he he does have a serious image problem right now doesn't he with with X formerly known as Twitter it's a bit more more than an image problem so Rosie at Twitter for long time since years organizations like Amnesty International or the london-based NGO glitch have documented how especially women of color queer people are disproportionately affected by violence and online hate so this is a long-standing problem now what Elon Musk has done is one of the first things he did when taking over the company was significantly reducing the trust and safety teams he eliminated the AI ethics team and he also reduced the human rights team so these are this is a very clear signal and now we're seeing the consequences so it's more than an image problem it drives people off the platform and drives advertisers a way too doesn't it I mean I mean however you look at it this this rebranding this this takeover has been a disaster in business terms hasn't it can ex formerly known as Twitter now that's catchy isn't it can it survive all of this that's that's a very very difficult question to answer but you definitely right this is this about much more than than human rights it's about business no Advertiser wants to advertise next to election interference incitements to violence this isn't good for Brands and we've seen Brands leaving the platform now we're seeing people leaving the platform I think there are two issues here at the root cause one of them is a real misunderstanding on on the side of musk on what freedom of expression actually means and then the second one is a gamble so the gamble is that first of all people want an everything app so an app that you can use for ride shares for payments and then the second gamble is that people will trust X the company formerly known as Twitter to be that everything brand and this is a really really big gamble that I'm not sure is going to work out yeah you say you're not sure it's going to work out but this is Elon Musk we're talking about here at the moment everything looks disastrous and this this plan for an everything app turning X into into a week chat if you like uh that does a bit of everything I mean what are the chances in five years time of you and I turning around and having to well say well we got that wrong he's done really well I think what he's missing in the equation is that people need to trust an app that they want to use for everything and with harassment and it's still a social media company deep down and as a social media company it's not meeting their responsibility and as a result people don't feel safe people don't have trust and if you want to be the app for everything you definitely need people and advertisers to trust you in the meantime over at meta of course Mark Zuckerberg has launched threads which is a kind of Twitter it's not there yet it's lacking many of the features that the Twitter has how much how much of a threat is that to work to ex formerly known as Twitter I mean it's clearly a threat there are all kinds of threats in the form of Alternatives like Mastodon but also blue skies Tick Tock has also launched a tank-based sort of communication so there's lots of competition happening at the moment um so yes it's a threat but I think let's not forget what Twitter really was Twitter really was the Town Square it's where movements like black lives matter me too all emerged and I think with this fragmentation that we're seeing now it will be much harder for any of these apps to be this sort of place the Town Square where we're having these kinds of debates and what's your gut feeling are we witnessing the death throwers of of a once fine social media platform here or will X somehow manage to to reinvent itself if x wants to X wants to reinvent itself as a product that has more features but it's neglecting the core responsibilities that a social media platform simply has to take on and I think if it will not work out the reason that people no longer feel safe and that people don't trust the app are going to contribute to its downfall Frederica great to talk to you on counting the cost many thanks indeed for being with us of course anytime Pakistan is of course one of the world's leading textile producers IT Supplies everything from genes to towels for buyers mainly in the US and Europe but the industry which accounts for nearly 60 percent of exports has been hit hard by the economic crisis many factories have shut down or are no longer running at full capacity now to Serious Alex beard reports the city of faisalabad is famous for its factories but many are struggling to stay open the price of electricity has increased making it more expensive to run Machinery in the collapse of Pakistan's currency makes importing raw materials very difficult every day dozens of factors are closing how hundreds of our workers are becoming jobless we even don't have the money to give our electricity bill that is the reason that these factories looks like the graveyard of the machinery and the reason is is that our government if they are politicians they are busy in the game of power everyone in the city has felt the impact of the crisis where are we supposed to go how are we to send our children to school and feed them we can only work if there's work the politicians are stuck in their own politics no one cares about his workers Pakistan has lots of poverty and unemployment and because of this industry so many of us get work and run our households especially important for women because there aren't a lot of opportunities generally the IMF recently agreed a three billion dollar bailout with Pakistan's government but it's one of the conditions is an end to energy subsidies Business Leaders are urging the government to protect the textile Industries they say the success or failure of Pakistan's economy could hinge on it Alex beard for counting the cost joining us now from Karachi in Pakistan is Yusuf M farook who's an economist and director of research at Chase Securities good to have you with us Yusuf are the textile Industries woes purely down to the economic crisis or are other factors at Play uh okay so Adrian though uh textile is a very large part of Pakistan's economy it makes up eight and a half percent of GDP it's 60 percent of Pakistan's exports uh there are parts of the economic crisis that are that are going to help the textile sector and there are parts that are not going to help the textile Etc as much for example interest rates have gone from six percent to 23 so that's a very big load on the income statements of uh textile companies and it's very difficult to survive at uh such high interest rates secondly what's happened is that because of IMF conditions uh the government has had to increase electricity tariffs to a price that makes it very difficult for some textile firms to survive on the other hand what happened is that there's been significant currency devaluation which has started to help the industry in some segments as it makes Pakistani good slightly cheaper so so it's a mixed bag uh the other thing that happened in the last year was import bands uh so even though there was currency devaluation textile firms in the last year were unable to import Machinery unable to replace parts so there were so so the industry went through quite a few issues in the last year uh the industry had captured some customers and gotten some customers in covet that usually used to place orders in Bangladesh and China but because of kovid and shutdowns over there Pakistani firms were able to get some customers from those countries but now because of higher tariffs uh it's getting very difficult to retain those customers as you said the tough conditions imposed on Pakistan uh by the the IMF for for that loan are now Rippling out right across the economy and affecting everyone uh in in society what does the government need to do to keep business moving to incentivize businesses to keep their production levels up uh see I think the currency devaluation that has happened over the last year the last year and before that it is going to help textile exporters become cheaper manufacturers of the good but along with that the government also has to look at uh interest rates which are very high right now which should start falling from February we feel interest rates could start coming down from February next year the important thing that the government needs to look at right now is fixing the power sector and reducing theft in the sector which will allow tariffs to slightly to start coming back down again uh so so theft and transmission and distribution losses are always a big issue in Pakistan and the government has to fix that so that tariffs can then become lower the other thing that the government should look at when setting minimum wages is the minimum wage in countries that Pakistani textiles and other Industries compete with right so though so the minimum wage is announced after the budget or make now make Pakistan on significantly more expensive than Bangladesh one of the reasons why Pakistan has to keep High minimum wages because Pakistan such a weird support price that's higher than the international price so what's the Outlook use of for the people of Pakistan who are suffering a great deal at the moment economically is this short-term pain uh for for brighter times just around the corner you mentioned February being a key date the the government and the policy makers they need to stick to a floating exchange rate which can absorb any shocks that come into the economy the Outlook we're very positive on the Outlook and I think the worst is now behind us and now we'll now the situation should gradually start improving there has been massive devaluation the real effective exchange rate is finally below 100 and it's been there for a while Pakistan has been posting very small current account surpluses and with a floating exchange rate and high rates though external account situation could remain Resort for a while Yusuf great to talk to you on counting the cost many thanks indeed for being with us thank you for waiting and that is our show for this week if you'd like to comment on anything that you've seen you can X me on the platform formerly known as Twitter I'm at a Finnegan try to remember to use the hashtag ajctc when you do or you could drop us a line email us at counting the cost at altazira.net there's plenty more for you online at altazira.com CTC that takes you straight to our page and there you'll find individual reports links and entire episodes for you to catch up on but that is it for this edition of counting the cost I'm Adrienne Finnegan for the whole team here in Doha thanks for being with us the news on Al Jazeera is next foreign

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Id: eJwrEWehROk

Length: 25min 35sec (1535 seconds)

Published: Sat Aug 12 2023