Still Little Popularized, Gold Is Quietly Making Progress

Everyone knows that Donald Trump has launched a large-scale trade war against the world. But who knows that central banks are buying gold in historic quantities? Many people know that US tariffs on Europe will now be 15%. But who is aware that China is continuing to buy gold and, what's more, is doing so discreetly? These issues are closely linked, yet they are not being treated in the same way. 

Gold is attracting growing interest among specialists but remains little known to the general public. As a result, only 1% of global assets are invested in gold. There are many reasons why gold is not more popular. First, gold is no longer a means of exchange. Its historical role as currency ended in 1971 when the Bretton Woods agreements came to an end, marking the end of the gold standard. No government wants its citizens to accumulate gold, as this would undermine confidence in the legal tender. Secondly, gold is by nature beyond state control. It can be purchased from private suppliers and held at will. However, the government, which by its very nature needs to monitor its citizens' spending, finds itself frustrated by its lack of control. In a period of public finance crises such as the one we are currently experiencing, this is all the more evident given that any investment in public debt would be significantly more profitable than in personal assets such as gold, which cannot be controlled by the government. This is why, in the United States, Trump is seeking to pass a law, known as the Genius Act, on stablecoins, which aims to back every dollar invested in these cryptocurrencies with US debt securities (gold, for its part, retains too much historical power to suffer the same fate).

Psychological biases and poor financial literacy are other contributing factors. Gold is an asset with nearly 5,000 years of use, spanning centuries and civilizations, and has been used as a medium of exchange in various ways while remaining at the heart of every monetary system. But very few people today are aware of this fact. Just as ethnocentrism reminds us that we judge everything according to our own culture, we tend to forget that what exists today has not always been around and will not last forever. We forget that paper and digital money are only recent developments in history and that they serve to support a tool, currency, for which gold was the benchmark for thousands of years. We also forget, to quote Voltaire, that all 'Fiat currency always eventually returns to its intrinsic value--zero', whereas the value of gold depends on its actual weight. This explanation is not widely known because financial education and literacy remain limited in most countries (particularly France).

For those who are aware of the historical significance of gold, its value is sometimes disregarded for cultural or financial reasons. There are differences between continents: in Europe, gold is not very common, while in Asia, mainly for cultural reasons, it is a highly prized asset. It should also be noted that the movements we are seeing today, in particular the massive purchases of gold by central banks in the so-called “Southern” (or Eastern) countries, merely reflect existing geopolitical power relations. With the heart of the global economy shifting from Western countries to the BRICS, which now account for 30% of global GDP (more than the G7 countries), the countries of the multipolar alliance are accumulating more gold.  Given the current situation, it makes sense that gold is more popular in these countries than in Western countries at the moment. Furthermore, gold is often associated with an outdated image. Many people prefer to invest in new technological assets or cryptocurrencies, which they perceive as having value for the future. Gold has long been seen as a barbarous relic, to use Keynes' words, in the face of new forms of currency. For some, including many economists, building a monetary system around gold would be a step backwards, which, in a world where progress is an end in itself, has no place. Despite these phenomena, gold is nevertheless experiencing a resurgence and regaining its importance, as if a return to reality were necessary. In the era of multiple crises we are currently experiencing, it is enjoying major success as an investment for individuals and as a store of value for central banks.

Finally, gold is sometimes overlooked for financial reasons because it is inherently a non-yielding asset. But this perspective overlooks the fact that gold has been the best-performing asset since the beginning of the century, with an average annual increase of 8%. And today, it is constantly reaching new heights, which are only a preview of what could happen in the years to come, given persistent inflation, the de-dollarization of the world, the proliferation of crises, etc. In addition to this, unlike other assets, it does not generate commissions or recurring fees, which may explain the lack of interest from banks. Finally, unlike savings accounts or stocks, it is almost never presented as a savings option. 

For various reasons, whether social, cultural, political, or financial, gold is still not widely discussed among the general public. However, this trend could change. The main demand for gold today comes from institutions and central banks, and their purchases are boosting investor confidence. As a knock-on effect, this interest is gradually increasing the popularity of gold, including in Western countries. Low interest rates in recent years and declining returns on savings accounts, combined with persistent inflation, have also prompted interest in other assets. As a safe haven asset with very strong growth, gold appears to be at the forefront. While this trend has slowed with the recent rise in interest rates and the bubble in US tech stocks, the popularity of gold is growing over the long term, as it remains a timeless asset.