Gold is always described as a safe haven, especially in light of crises affecting regional or global economies. At the end of 2019, the global economy experienced the crisis of the Corona virus pandemic, then came the crisis of the Russian war on Ukraine;
To put the world in front of major events, including the future of the dollar as a currency for international settlements in finance and trade.
Russia announced that it will adopt its local currency to settle its oil exports with certain countries. Some media outlets also published that Saudi Arabia is studying the possibility of settling part of its oil exports to China in the Chinese currency, and there are transactions between some countries regarding foreign trade in local currencies.
This was accompanied by the energy crisis, which erupted after the first half of 2021, as this led to an increase in inflation rates in most of the world’s economies, as well as a decrease in the purchasing value of many currencies of emerging countries, which encouraged the trend to increase the demand for gold by governments and individuals. ;
Hence its high price in the international market.
According to the report of the World Gold Council in January 2022, the demand for gold in 2021 increased significantly, reaching 4,021 tons, and the demand included various aspects of the components of purchase, both for gold bullion, which demand increased by 31%, which is the highest level since 8 Years at 1180 tons, the demand for jewelry increased to 2124 tons, matching what it was in 2019, and central banks sought to increase their balances, adding 463 tons.
future demand for gold
The current situation of the Russian war on Ukraine can be described as a state of exhaustion for both sides;
Russia on the one hand, and Europe and America on the other, and from here we are facing open scenarios, but the dimensions of these scenarios are that a political solution is reached in the short term.
Accordingly, the energy problem will remain simmering, accompanied by the food crisis, which means that inflation rates will remain high, as well as continuing concerns about the future of the global economy, as well as the persistence of anticipation about a new global monetary system, which is trying to get rid of the dollar.
Individuals or governments will have no choice but to expand the acquisition of gold, to maintain the value of individuals' savings, or to strengthen reserve balances with central banks, and this will help the gold price to remain high, during the next stage.
But if a solution to the energy issue is reached, and oil and gas prices in the international market are reduced to what they were before the second half of 2021, whether that is by ending the Russian war on Ukraine, or another means;
Gold prices will fall at a significant rate.
It is worth noting that gold prices on Monday, April 18, 2022, were at $2001 an ounce for futures contracts, and $194 an ounce for spot contracts.
How is the price of gold determined in the international market?
Gold, like other commodities that are traded on, is determined by the movement of supply and demand, and there are several determinants of the price of gold in the international market;
Including the popularity of some economic activities and the high profits in them;
For example, if the money market achieves high profits, and the risk in it is low, the price of gold decreases because investors or savers get rid of what they have of gold to take advantage of this opportunity.
Likewise, if banks give interest rates that exceed inflation rates, and help to increase the purchasing power of money, the price of gold will fall, and savers will get rid of what they have of gold, to benefit from the high interest rate.
Also the policy of central banks to increase or dispose of their gold balances;
If the central banks see that they need liquidity, and they get rid of some of their gold balances, the price of gold will drop.
This actually happened after the global financial crisis in 2008, when not a small percentage of central banks around the world got rid of some of their gold balances due to their need for liquidity. Rather, the International Monetary Fund did so, which led to a noticeable drop in gold prices.
In contrast to these trends, the price of gold will be raised, as the turmoil of money markets, or the decline in interest rates to less than the inflation rates by a large percentage, or the tendency of central banks to increase their balances of gold, all of this leads to an increase in demand for gold, and thus increases its prices in the local or international market.
The relationship between gold and oil
Under normal circumstances, and away from crises and wars, the prevailing was the existence of an inverse relationship between the prices of oil and gold in the international market;
When the price of oil was falling, speculators would transfer their money from the oil market to gold, which would increase the demand and raise the price, and vice versa.
When the price of oil rises, speculators withdraw their money from the gold market to direct it to the oil markets. The supply of gold increased;
The price goes down.
As for what is happening in light of the continuing energy and food crisis since the second half of 2021, as well as the negative repercussions of the Russian war on Ukraine, we are in front of a new equation, which is an exception and not an original, as the prices of both gold and oil continue to rise, so that there is a direct relationship between my prices Oil and gold.
Under normal circumstances and far from crises and wars, an inverse relationship between the prices of oil and gold was prevalent (Shutterstock)
Major producers and exporters
According to data published by the World Gold Council, the relationship between major gold producers and major holders of gold is weak;
While we find that the list of the top five gold producers annually includes: China (368 tons), Russia (331 tons), Australia (327 tons), America (190 tons), and Canada (170 tons), we find that the list of the Big Five Gold holders include: America (8133 tons), Germany (3,359 tons), the International Monetary Fund (2814 tons), Italy (2,451 tons), and France (2,436 tons).
However, despite these data, despite their importance, it is possible to go to the reasons for the lack of production in some countries for not prioritizing the production process, either for economic considerations, or for strategic considerations to keep crude in their territories for the largest possible period, as is the case in America.
Also, large producing countries such as China and Russia may view the production process as one of the important resources to increase income, especially as it is a required commodity, and it can generate continuous job opportunities, whether direct or indirect job opportunities, because the production process is followed by other processes;
From manufacturing or trading, whether for ore or handicrafts, or for considerations of using gold chips in semi-transportation that are used in modern phones and computers.
Arabic gold
The published data shows that the five largest Arab gold-holding countries are 4 oil-rich countries, and one non-oil country is Lebanon, and the five largest gold-holding countries are: Saudi Arabia (323 tons), Lebanon (286 tons), Algeria (173 tons), and Libya ( 116 tons), and Iraq (96 tons).
Even Egypt is ahead of Arab oil countries in possession of the gold balance;
Egypt has 80 tons of gold, while Kuwait has 78 tons, Qatar has 56 tons, and the UAE has 55 tons.
This can be explained by the fact that the currencies of all Gulf countries are linked to the dollar and have been stable for many years, and their lack of interest in increasing their gold balances may be due to the stability of their currency, which is protected by dollar cash flows from oil exports, as well as these countries owning large stocks of oil and gas.
In terms of gold trade, the UAE is the largest country in terms of importing and exporting gold, diamonds and precious stones, but one of the observations that we should draw attention to is that trade in these commodities is one of the broad doors to money laundering operations in general in all countries of the world.
types of gold
There are several classifications of types of gold in the various processes of dealing with it, for example, in terms of its classification as ore or gold artifacts, or in terms of being alloys or currencies of countries from pure gold, or in terms of the type of ore, as there are 4 types, the purest of which are yellow gold, then white gold , then rose gold, then green gold, and these types differ in terms of mixing gold with other metals such as copper, platinum, palladium, or silver.
As for the types in which the price of gold is determined based on its purity or the percentage of gold in the works, there is what is known as the carat as a determinant of the purity of the type of gold, including the following types: 24 karat, 21, 18, and 14.