Are advanced economy central banks giving up on the U.S. dollar?

[View this email in your browser]( [Youtube]( [Kitco Metals]( Editor's Picks [@neils_C]( There is growing frustration in the [gold]( market as the precious metal continues to churn in a narrow range between $2,300 and $2,350. However, this consolidation is also removing froth from the market and helping us focus on the broader landscape. Since March, the gold market has been on an impressive run, rallying to a new all-time high above $2,450 an ounce. Although momentum has stalled, it is important to recognize that the factors behind the rally have not disappeared. The world remains rife with geopolitical uncertainty, especially ahead of the November U.S. elections. The U.S. dollar’s status as the world’s reserve currency continues to be challenged, and the global inflation threat persists. [According to the World Gold Council’s annual Central Bank Gold Reserves survey, these are the top reasons why both retail investors and central banks are buying gold.]( This year, 70 central banks were surveyed, and 29% expect to increase their exposure to gold in the next 12 months. At the same time, 81% of central banks expect global central bank gold reserves to increase over the next year. This is the strongest response the WGC has received from its gold survey, which started in 2018. While these are impressive stats, what really jumped out at me was the long-term outlook central banks see for their gold reserves and the U.S. dollar, even among developed economies. According to the survey, 57% of advanced-economy central banks see gold’s share of global reserves rising in the next five years, up from 38% in 2023. Meanwhile, 23% of developing market central banks see the U.S. dollar’s role as the world’s reserve currency diminishing over the next five years, up from 13% reported last year. I would expect emerging markets to shift their focus away from the U.S. dollar as they diversify their reserve assets. Then again, this might not be such a big surprise if we look at the trajectory of U.S. government debt. This week, the Congressional Budget Office released new projections that show federal government debt to be $1.9 trillion, or 6.7% of GDP, for the 2024 fiscal year, $400 billion higher than its February estimate. According to Paul Ashworth, Chief North American Economist at Capital Economics, the increase is due to higher net interest outlays, with the primary deficit unchanged at 3.6% of GDP. U.S. debt is on an unsustainable path higher, and the threat is only exacerbated by the Federal Reserve’s aggressive monetary policy. In this environment, it’s no wonder everyone is turning to gold. That’s it for this week. Have a great weekend, and enjoy the start of summer! Neils C. 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