Foreign central banks are acquiring gold at the fastest pace in 50 years, and their purchases are not driven by investment considerations alone. The Central Bank of Russia, 2018’s largest official sector buyer of gold, wants to reduce Russia’s dependence on the dollar, while the Hungarian National Bank noted gold’s increasing strategic importance as underlying their recent purchases.
America cannot stop foreign central banks from buying gold or reintroducing gold into the international monetary order. We can, however, adopt policies that will attract more of the world’s gold to the United States and position ourselves to deal with the remonetization of gold from a position of strength.
At the end of the Second World War, the U.S. Treasury owned more than 30 percent of the world’s gold. Today, that same figure is less than 5 percent. America’s diminished share of the world’s gold is a result of our defense of the Bretton Woods System prior to its collapse in 1971 and subsequent failure to increase our gold reserves. The U.S. Treasury has not added to its gold reserves since 1969, and the Federal Reserve has not owned physical gold since the passage of the Gold Reserve Act in 1934.
American investors have also been largely absent from the physical gold market in recent years. In 2018, Americans purchased just 28 tonnes of gold coin and bars, less than 1 percent of global mine production. Americans’ lack of investment appetite for physical gold reflects more than our collective faith in the dollar. It also reflects American tax policy that subjects physical gold, even gold coined by the U.S. Mint, to a higher tax rate than many other investments, including some gold derivatives.
A Global Gold Rush
While discouraging and even prohibiting Americans from owning gold was never good policy, it was at...