Gold has proven to be an enduring and reliable asset, especially during challenging times, with demand for gold by central banks remaining stable in 2023, which is likely to continue this year, say gold bullion trading and vaulting company SA Bullion co-CEOs Imran and Clint O’Brien.

“The demand for gold by central banks has surged in recent years. Accumulation in 2020 amounted to about 255 t, and in the following two years up to 2022, this demand increased more than fourfold, to about 1 080 t,” they say.

Nearly half of the overall demand for gold is driven by jewellery fabrication, while the rest is accounted for by central banks and global investors.

Gold is also used in the medical field because of its effective therapeutic agents that can be used for the treatment of some inflammatory diseases; gold nano particles are used in X-ray films and magnetic resonance imaging.

Furthermore, electronic device manufacturing processes also require gold, owing to its high conductivity and resistance to corrosion. Gold is a vital component in the development of certain electrical technologies, accounting for 7% of demand in the technology sector, with inevitable acceleration expected in this sector, says Clint.

Investment Shifts

To mitigate investment risks, central banks and investors are shifting their focus and reallocating resources to assets that are immune to the common investment risks they often face. Gold has historically always offered these safe haven properties.

In an analysis report published by SA Bullion – ‘The Macroeconomic Cycle from Prosperity to Peril’ – the organisation highlights some of the driving factors that make investment in gold an enticing prospect for global central banks.

The factors include increasing debt levels; financial, liquidity and solvency crises; moral hazards; rising inequality; and greater centralised planning and control, which fuels debt levels.

Firstly, globally increasing debt levels in the private and public sectors, in developed and developing countries, give rise to liquidity crises, as debt repayments exceed available income, Clint explains.

The liquidity crisis gives way to what he calls a solvency crisis, which, in turn, excessively pressurises the global economic system, which, at that point, is already fragile.

Thereafter, a financial crisis ensues as a direct result of bank failures: “The financial crisis that occurred as a result of the largest loss of assets due to bank failures in 2023 was the largest of its kind throughout history.”

A moral hazard follows suit, whereby poor decision-making practices are perpetuated by those who go unpunished for reckless financial behaviour, which then spurs on an increased level of financial inequality, the O’Briens add.

Overall, these stages of macroeconomic peril give rise to increased political unrest, which then requires government and politicians to resort to greater levels of centralised planning and controls to prevent social upheaval.

This, Clint suggests, is funded by further debt.

“The result is heightened social distrust, extending to leadership and government. Political unrest increases and geopolitics become more unstable . . . The cycle becomes a vicious and unsustainable one in the long run,” he concludes.

SA Bullion is a 100% black economic empowered South African company with local and international offices and with vaulting locations in Dubai, Mauritius and Switzerland. The brothers are currently positioning SA Bullion to pivot into the fintech space through their Goldstore application, to be launched globally within the next six to 12 months.