Why is the price of gold rising globally?

Why is the price of gold rising globally… and is it an alternative to Lebanon’s banks?

Imad Al-Shediac wrote on the “Asas Media” website: Despite the decline that gold prices witnessed in the past two days, the indicators supported by experts’ expectations indicate that this decline is merely a “temporary correction.” After that, the price of the yellow metal may return to completing its soaring journey… perhaps reaching $2,700 per ounce by the end of the current year.

Gold sets a precedent that the global economy has never witnessed before. Its price rises to those records that exceeded $300 within weeks, reaching above $2,400 per ounce. Despite the stability of interest rates in the United States and the European Union at 5% and above.

It is known that the price of gold falls when central banks in the world raise interest rates. This tempts investors, prompting them to abandon gold in order to invest in high interest rates. But what is happening today is otherwise: “High interest vs. high gold price”… and that is the precedent.

Many economic experts in the world attribute this rise to 4 main reasons, which combined and intersected, led to this boom in the price of gold. which is next:

1- Anticipating a reduction in interest rates in America: Market sentiment tends towards expectations of a reduction in interest rates during next June due to the decline in price pressures (inflation) in the American economy. The US Federal Bank is expected to start organizing the first interest rate cut. It is expected to reduce it by 25 basis points. This enhanced the anticipatory demand for gold before its price rose as a result of the reduction in interest rates.

2- Increasing geopolitical risks: especially as a result of targeting the Iranian consulate in Syria, then the Iranian response to Tel Aviv. Then what followed was the “response to the response” a few days ago. These tense circumstances prompted investors to resort to gold in anticipation of any escalation that might reach the limits of “direct confrontation” between Israel and Iran. In addition to the Ukrainian war and its consequences. Likewise, the geopolitical situation in the Taiwan Strait between Beijing and Washington is tense.

3- The aggressive buying of central banks, especially the Chinese: Central banks in many countries of the world are busy buying gold, as a result of the “uncertainty” surrounding the American economy. Among those banks: Poland, India, Qatar, Egypt, and Kazakhstan, led by China, whose central bank has focused on purchasing over the past 17 months. This made it the most voracious buyer among central banks in 2023, with 225 tons. That is, approximately a quarter of the 1,037 tons purchased by all central banks in the world. While some expectations indicate that China has been working throughout this period to get rid of its surplus US dollars for the sake of gold.

The purchase did not stop only with the Chinese state, but also with Chinese citizens who lost confidence in real estate (historically their savings haven). Especially after the faltering of the most important real estate companies in the country. That’s why they started buying gold in various sizes, up to one gram.

4- Uncertainties preceding the general elections in major economies: Since its beginning, the current year has witnessed decisive presidential and parliamentary elections in more than one country. On top of which are the upcoming presidential elections in the United States. As well as the parliamentary elections in Britain, Germany, India, and some European countries that are threatened by the “extremist right” sweep… and all of this may herald political and economic turmoil at the world level that will push investors to flee towards “safety”… That is, towards gold.

In Lebanon, the demand for gold has not stopped either. Not only now, but since the beginning of the crisis, specifically since the beginning of 2020. However, last year 2023 was the “most voracious” for the Lebanese for gold.

Figures from the Lebanese Customs Directorate, as reported by Information International, show that 2023 was the “least export year and highest import year” for gold and jewelry. The import movement recorded about 1.49 billion US dollars, while the average for the last ten years did not exceed 1.22 billion dollars.

Starting in 2019, Lebanon imported gold bullion worth $476 million until the number reached approximately $1.2 billion in 2023. As for exports, a successive decline was recorded that began in 2019 with a value of $1.132 billion until it reached approximately $150 million. At the end of last year, this shows that the Lebanese were exchanging cash currencies for gold in order to save at home. That is, the Lebanese who were buying an average of half a billion dollars a year in gold, saving it and exporting most of it after “working” on it…they themselves bought approximately 1.5 billion dollars last year, and exported only 150 million of it. That is, they kept $1.35 billion in their homes and stores in one year.

These statistics are confirmed by one of the owners of the “Boghos” company, which specializes in buying and selling gold and silver. François Boghos tells Asas: “The sale of gold has been rising for years in Lebanon. The Lebanese have confidence today that gold will not fall.”

Boghos attributes the reasons to “the American economy being uncomfortable.” Washington has debts, not to mention the political and military crises that it supports or fuels… All of this leaves the impression that acquiring and saving gold is better than saving the US dollar. The declines recorded from time to time are only corrections, but the general trend is upward, and this is confirmed by most Western reports.”

Regarding the volume of purchases inside Lebanon, Boghos prefers not to go into it, and says, “We do not have accurate numbers about the volume of buying and selling inside Lebanon, but what I can confirm is that the rush for gold exists, especially in the past two years, when purchasing required paying a deposit and waiting for its delivery.” For a week and perhaps more in some cases, depending on demand. Today, the crowding in purchasing continues, but at a pace that allows delivery to customers in a shorter period of time.”

In contrast to the global atmosphere driven towards binge buying gold, the Bank of Lebanon was absent from this scene. On the contrary, some “whispers” against the backdrop of the economic crisis that has struck Lebanon for four years have begun to rise to ask why the Bank of Lebanon’s gold assets are “sanctified” to this extent. Likewise, the question is why the Central Bank did not benefit from that boom in order to sell part of its gold to pay off the debts it accumulated to the banks… or at least why it did not engage in this game. In order to invest in gold by purchasing more ounces or bullion. Even if in modest sizes over the past year, especially since all indicators suggested an increase. Taking into account that the decision to sell gold or part of it requires a majority vote in the House of Representatives.

It is known that the Bank of Lebanon owns approximately 10 million ounces of gold (about 286 tons), which places it in 19th place in the world (it may soon lose it to other countries). While the value of these gold assets has reached a new peak of $21.7 billion in the middle of this month, April 2024, compared to $20.3 billion at the end of March 2024, and $18.7 billion in mid-April 2023… that is, an increase of $3 billion in one year. .