Authored by Ronni Stoeferle via GoldSwitzerland.com,

The reshaping of the world economy and the global (political) order is in full swing.

It is a long process, the concrete outcome of which is uncertain in advance and associated with numerous imponderables. Nevertheless, there are powerful factors, such as the shift in economic, demographic and military weight, that are driving the readjustment in the (geo)political arena. And this readjustment is also reflected in the change in gold flows. They are increasingly shifting from West to East, since “Gold goes where the money is,” as James Steel pointedly put it.

1. The central banks of the states of the East are among the strongest buyers of gold – also within the West

This is also reflected in the continuing enthusiasm of central banks for gold, especially in non-Western countries. 2022 saw the largest purchases of gold by central banks since records began more than 70 years ago, at 1,136 tons. The first half of 2023 saw a continuation of this trend. Despite a weaker second quarter, central bank purchases in the first half of the year set a new half-year record. Central banks increased their gold reserves by a total of 378 tons from January to June. The previous half-year record from 2019 was thus slightly exceeded. China made the largest purchases, followed by Singapore, Poland, India and the Czech Republic. So even in the West, it was countries in the East that made additional purchases.

The following chart shows the extent to which institutional demand for gold has shifted to the East. It compares the cumulative gold sales of Western central banks with the cumulative gold purchases of the Shanghai Cooperation Organization (SCO or SOC) since 2001.

Looking at the BRICS, we also see a striking overlap, with central banks from four of the five BRICS countries – Brazil, Russia, India and China – buying a cumulative 2,932 tonnes of gold over 2010–2022.

2. Holdings of US Treasuries are reduced

In turn, the BRICS continue to reduce their share of the soaring US government debt. In other words, gold is becoming more and more interesting as a reserve asset because US Treasuries have been becoming less and less interesting as a currency reserve for more than a decade. The militarization of money by freezing Russia’s foreign exchange reserves just days after Russia’s invasion of Ukraine in late February 2022 added emphasis to this process, but did not kick it off.

The BRICS now hold only 4.1 percent of all US government debt, compared with 10.4 percent in January 2012. That is a decline of more than 60 percent. The rest of the world has reduced its exposure to US government debt by much less. In January 2012, the rest of the world held 22.0 percent of all US government debt on their books; currently, they hold 19.3 percent. That is a decrease of more than 12 percent.

3. The East is expanding its infrastructure for gold trading

However, the East is not only stocking up on gold and mining gold itself on a large scale. China and Russia have ranked among the top 3 gold producing nations for years.

Countries such as China, the United Arab Emirates and even Russia are expanding their gold trading infrastructure. This is to establish a permanent infrastructure for the detour of gold trading from gold trading centers in the West such as London, New York and Zurich. This testifies to the changing understanding of roles: The East increasingly no longer sees itself as a customer of Western infrastructures, but offers the infrastructure itself.

Key developments include:

• SGE & SFO NRA: Cooperation between the Chinese and Russian gold markets

For some time now, China and Russia have been working hard to link their gold markets through cooperation between the Shanghai Gold Exchange (SGE) and the Russian financial authority, the National Financial Association (NFA). The NFA is a Russian professional association representing the entire Russian financial sector, including the Russian precious metals market.

In the face of Western sanctions, Russian gold exports to China have already surged since mid-2022. As three Russian banks – VTB, Sberbank and Otkritie – are already members of the SGE International Board of the SGE, which was founded in 2014, this cooperation between the gold markets of Russia and China is likely to intensify in the future.

• Memberships in gold-related institutions

As gold flows from west to east and the importance of eastern gold markets increases, these markets will also have greater representation and influence in the global institutions that represent the gold market, such as the LBMA and the World Gold Council (WGC).

In 2009, only six Chinese refineries were on the LBMA’s Good Delivery List, but now there are thirteen. While just 15 years ago there was only one regular (full) member of the LBMA from China, the Bank of China, there are now seven. China’s growing influence is also reflected in the World Gold Council. In February 2009, only one Chinese gold producer was a member of the WGC; now there are four.

• India International Bullion Exchange (IIBX)

In addition to its sophisticated OTC gold trading market, India has also established a trading infrastructure for gold futures contracts on the Multi Commodity Exchange of India Limited (MCX). In July 2022, the India International Bullion Exchange (IIBX), supported by the Indian government, was officially opened for trading spot gold contracts backed by physical metal. IIBX is located in a special economic zone in GIFT City in the Indian state of Gujarat, and the gold underlying the contracts is stored there. One goal of IIBX is to allow qualified buyers to import gold directly into India without the need for banks or authorized agencies. So far, however, trading volumes have been minimal.

• Establishment of a Moscow World Standard

At the end of February 2022, when sanctions against Russia were imposed by the West immediately after the start of the Ukraine war, the London Bullion Market Association (LBMA) excluded the three Russian banks VTB, Sovkombank and Otkritie. A few days later, the LBMA removed all six Russian precious metals refiners from the LBMA Good Delivery List and the CME Group followed suit, removing the same refiners from the list of approved COMEX refiners.

As a result, Moscow announced in July 2022 that a new infrastructure for precious metals trading independent of the LBMA and COMEX would be established. According to Moscow, this is intended to break the supremacy of London and New York in global precious metals pricing. This proposal calls for the introduction of a Moscow World Standard (MWS) for precious metals trading, similar to the LBMA’s Good Delivery List, the establishment of a new international precious metals exchange in Moscow based on the MWS, the Moscow International Precious Metals Exchange, and the creation of a new gold price fixing based on the MWS so as to establish gold prices and reference prices different from those of the LBMA and COMEX.

4. Private gold demand shifts to the east

EAST’S increased interest in gold is also evident in the non-governmental sector. Chinese consumer demand, for example, increased from 292.6 tons to 824.9 tons (2022) since the turn of the millennium. This is an increase of 181%. Annual consumer demand in India has also increased since the turn of the millennium, albeit from an already high level in 2000. China and India, which together accounted for only 28.7% of consumer demand in 2000, account for almost half of global consumer demand (48.4%) in 2022 and together acquired 1,600 tons of gold last year.

Source: World Gold Council, Incrementum AG

Recent developments point in the same direction. In the first eight months of the current year, Asian gold ETFs increased their holdings by 7.7%, while North America and Europe recorded outflows of 2.3% and 6.1%, respectively. Significantly, in the bars and coins demand segment, Turkey and Iran replaced Germany and Switzerland in the top 5 in the first half of the year. China now leads this sub-segment of gold demand – in the first half of 2022, Germany was still in the lead – followed by Turkey, the US, India and Iran. This is because while demand for bars and coins in Turkey shot up from 9.5 tons to 47.6 tons in the second quarter of 2023, it fell by around three quarters in Germany.

5. The price of gold in currencies of the East has increased significantly

As of the end of September, gold was 14.6% higher in Indian rupees than at the beginning of 2022, 18.0% higher in Chinese renminbi, 34.3% higher in Russian rubles, 22.1% higher in South African rand (all left-hand side) and 114.0% higher in Turkish lira (right-hand side). Gold thus impressively demonstrates its value-preserving properties in difficult (geo)political and macroeconomic situations in these countries.

The significantly increased premium on the gold price in China since July is an unmistakable sign that there is a structural shortage of gold in the Chinese market and thus an expression of the strong demand for gold in the Middle Kingdom, which is struggling with profound economic problems.

Conclusion

This shift in demand from West to East can be observed not only among governments or government-related entities, but also among institutional and private investors. Gold is flowing to where it is most valued and where economic prosperity and savings rates have increased. In the medium term, the shift in demand should therefore find support from the higher growth prospects in Asia and the Middle East. “Ohne Geld, ka Musi” (“Without money, no music”) – this is how the vernacular formulates this economic truism in German. And as the IMF’s most recent economic growth forecast indicates, the sub-region of emerging and developing Asia will grow at a projected 5.2% this year and 4.8% next year, while the West will grow much less strongly. This will also lead to a shift in influence on pricing from West to East.

Summary:

After giving the northern Gaza strip an evacuation ultimatum on Friday, Israel has so far withheld from launching a "significant" ground operation, with some speculating that requests from the US to evacuate all US citizens out of Palestine ahead of the invasion is what is holding Israel back. Meanwhile, Iran’s foreign minister on Saturday said that if Israeli “war crimes & genocide” are not stopped, the war might expand to other parts of the Middle East if Hezbollah joins the battle, and that would make Israel suffer “a huge earthquake.” Meanwhile, Axios reported that Tehran has sent Jerusalem a message through the UN that it will intervene if the campaign in Gaza continues, and particularly if it launches a ground offensive.

This was followed by news Sunday morning that the US has been backchanneling with Iran in recent days to warn against escalating the conflict in Israel (after all, Biden can't afford to lose those sanctioned Iranian oil exports whose re-embargo would promptly send the price of oil above $100).

Another reason why Israel may be waiting: the Pentagon confirmed that it has ordered a second carrier strike group to the eastern Mediterranean Sea after a first carrier strike group, led by the USS Gerald R. Ford, arrived off the coast of Israel last week.

Background:

On Saturday, the Israeli army said it’s making preparations for “significant ground operations” in Gaza, with the Israel Defense Forces saying in a statement that the next phase of the war can include a coordinated land, sea and air assault.

Israel has called up a record 300,000 reservists and has been pounding Gaza after the unprecedented incursion in which more than 1,000 Hamas fighters swept across the border and attacked Israeli military posts, bases and settlements. More than 1,300 Israelis died, mostly civilians, and up to 150 people were abducted and taken into Gaza. More than 1,900 Palestinians have been killed in the Israeli bombing campaign as fears mount of major casualties once Israel sends troops into the crowded coastal strip, home to 2.3 million people. Israel on Friday gave 24 hours for more than 1 million Palestinians to evacuate their homes in Gaza.

Separately, Israel confirmed for the first time that there were intelligence indications of something happening in Gaza two hours before the attacks last week. The head of Shin Bet, Israel’s internal security service, spoke with military personnel about the reports, said Tzachi Hanegbi, head of Israel’s National Security Council. “Both sides assessed that this is something other than it turned out to be,” he said.

Meanwhile, Hamas, which has been designated as a terrorist group by the US and the European Union, said Israeli air strikes killed another nine of its hostages in the past 24 hours, raising the total to 26. Many governments, including the US and European countries, are rushing to evacuate citizens in anticipation of an Israeli incursion into Gaza, though the Rafah border crossing out of Gaza to Egypt was reported to be closed to foreign nationals Saturday.

On the diplomatic front, Joe Biden’s team has voiced anxiety about Israel’s 24-hour evacuation demand, a deadline that the European Union and the United Nations called unrealistic. On Friday, Biden said people shouldn’t “lose sight of the fact that the overwhelming majority of Palestinians had nothing to do with Hamas” something Biden tweeted on Sunday morning.

We must not lose sight of the fact that the overwhelming majority of Palestinians had nothing to do with Hamas’s appalling attacks, and are suffering as a result of them.

— President Biden (@POTUS) October 15, 2023

The US Embassy in Israel said it’s “working on potential options for departure from Gaza.” US citizens living in or visiting Gaza may be allowed to leave on Saturday, according to a US official. The embassy said it’s facilitating more chartered evacuation flights from Tel Aviv’s Ben Gurion Airport and urged US citizens and immediate family members to use them “while they are available.” The US government also said it is assisting US nationals and their immediate family members with a valid travel document to depart Haifa via sea for Cyprus on Oct. 16, according to a statement on the US Embassy in Israel website.

The State Department in Washington authorized the departure of non-emergency embassy personnel on Friday, citing an “unpredictable security situation.” With commercial flights to Israel disrupted, European countries such as France and Germany also have been providing planes to get their citizens out of the region.

Latest Developments:

Iran’s foreign minister on Saturday called on Israel to stop its attacks on Gaza, warning that the war might expand to other parts of the Middle East if Hezbollah joins the battle, and that would make Israel suffer “a huge earthquake.” Hossein Amirabdollahian told reporters in Beirut that Lebanon’s Hezbollah terror group has taken all war scenarios into consideration and Israel should stop its attacks on Gaza as soon as possible. Meanwhile, the Axios news site reported that Tehran has sent Jerusalem a message through the UN that it will intervene if the campaign in Gaza continues, and particularly if it launches a ground offensive. The report cited two diplomatic sources with knowledge of the matter. The report said Amirabdollahian made the comments when he met Saturday with UN Middle East envoy Tor Wennesland in Beirut, a meeting that led to intense criticism from Israel. A short while later, Iran’s mission to the UN warned in a tweet that if Israel’s “war crimes & genocide” are not stopped immediately, this could have “far-reaching consequences” and the situation could “spiral out of control.”

If the Israeli apartheid’s war crimes & genocide are not halted immediately, the situation could spiral out of control & ricochet far-reaching consequences—the responsibility of which lies with the UN, the Security Council & the states steering the Council toward a dead end.

— Permanent Mission of I.R.Iran to UN, NY (@Iran_UN) October 14, 2023

* * *

US Warned Iran in Back-Channel Talks on War: The US has held back-channel talks with Iran in recent days to warn the country against escalating the conflict in Israel, as Israeli forces prepare an expected ground assault in response to last weekend’s surprise attack by Hamas. “We have means of communicating privately with Iran, and we have availed ourselves of those means over the past few days to make clear privately that which we have said publicly,” White House National Security Advisor Jake Sullivan said Sunday on CBS News’s Face the Nation. Sullivan said the US couldn’t rule out that Iran might intervene in the conflict, and was monitoring both the possibility of direct involvement by Tehran and proxy activity by Hezbollah across the border with Lebanon.

* * *

Israeli army awaits "political" green light for Gaza invasion:  The Israeli army is awaiting a "political decision" on the timing of a major ground offensive on the Gaza Strip, military spokesmen said Sunday as civilians stepped up desperate efforts to flee northern Gaza. Military spokesmen Lt. Col. Richard Hecht and Rear Adm. Daniel Hagari told separate briefings on Sunday that "a political decision" will set off any action against Hamas. "We will be holding discussions with our political leadership," Hecht told one briefing.

Prime Minister Benjamin Netanyahu told troops near the Gaza border on Saturday that "more is coming." But he did not say when any ground operation would start. Military spokesmen have told reporters that any invasion would aim to eradicate Hamas' militant network and leadership so that it cannot stage more attacks. The Israeli military has particularly singled out Yahya Sinwar, the chief of Hamas in Gaza who they blame for the Oct. 7 attacks. "That man is in our sights," Hecht said on Saturday. "He is a dead man walking and we will get to that man."

* * *

Rockets were fired at Tel Aviv and southern Israel overnight, and the Israel Defense Forces attacked targets in and around the northern part of Gaza. It was not immediately clear how much damage, if any, was caused in the rocket attacks. One Israeli died on Sunday in a Hezbollah attack on Israeli army posts near the border with Lebanon. Subsequent reports indicate that more rockets had been fired into northern Israel from Lebanon.

Initial reports say that rockets were fired from Lebanon. Waiting for further confirmation.

— Joe Truzman (@JoeTruzman) October 15, 2023

Impacts reported in norther Israel. pic.twitter.com/YZgIoofboU

— Moshe Schwartz (@YWNReporter) October 15, 2023

* * *

Moroccans Push to Sever Israel Ties in Mass Protest:  Tens of thousands of protesters took to the streets of Rabat, Morocco’s capital, demanding King Mohammed VI to severe ties with Israel which were restored in 2020. The marchers denounced as “barbaric” ongoing military intervention by Israel in Gaza and demanded the closing of its liaison office in the Moroccan capital. 

* * *

Blinken Meets With Saudi Crown Prince:  Blinken travelled to Riyadh on Sunday for an hour-long talk with Saudi Crown Prince Mohammed bin Salman that the top US diplomat deemed “very productive.”   MBS highlighted Riyadh’s diplomatic outreach “to calm the situation,” the official Saudi Press Agency reported.

Saudi Crown Prince Mohammed bin Salman and I met today in Riyadh and discussed the Hamas terrorist attacks on Israel. pic.twitter.com/HjoGMmTzqi

— Secretary Antony Blinken (@SecBlinken) October 15, 2023

* * *

Blinken Will Return to Israel on Monday:  US Secretary of State Antony Blinken will return to Israel on Monday for further consultations with senior officials there, his spokesman said. The top US diplomat was previously in Israel on Thursday as part of a frenetic tour of the region that included stops in Qatar, Jordan, Bahrain and the United Arab Emirates as well as Saudi Arabia, as the Biden administration tries to limit the threat of a spreading conflict in the Middle East.

* * *

Blinken Urges China to Use Its Influence:  US Secretary of State Antony Blinken urged Beijing to use its influence to prevent other state or non-state actors from attacking Israel and widening its war with Hamas, the State Department said. Blinken spoke with Foreign Minister Wang Yi before departing from Riyadh, where the top US diplomat was attempting to shore up support for Israel among Arab nations, said State Department spokesman Matthew Miller. He met with Saudi Arabia’s Crown Prince Mohammed bin Salman, the State Department said.

* * *

Israel, Hezbollah exchange fire, heightening fears of a second front opening:  Cross-border fire erupted between Israel and Lebanon early Sunday, killing at least one person on the Israeli side of the border. Both the Israeli military and the Lebanese militant group Hezbollah acknowledged the fighting. Hezbollah says it fired guided missiles toward an Israel army post in Shtula from Lebanon, according to the militant group’s Al-Manar TV. The Israeli military said earlier it was targeting southern Lebanon after initial report of a shooting near the Lebanese border.  

The group said in a statement the attack was in retaliation for Israeli shelling that killed Reuters videographer Issam Abdallah on Friday and two Lebanese civilians on Saturday. Israel has responded by targeting the outskirts of the town of Ait el-Shaab, the Israeli military said. The Israel Defense Forces also banned civilians from going within two-and-a-half miles of the Lebanese border. In addition, the Reuters news service reports, Israel disrupted GPS electronic location services in the northern border area and at the Gaza front, according to Reuters. Israel's Magen David Adom rescue service said a 40-year-old man was killed in the attack from Lebanon, without elaborating or giving his nationality.  As Israel wages its war against Hamas over last week's unprecedented attack by the Gaza Strip militant group, there's been concern that Hezbollah could enter the war as well as Israel moves toward launching a ground offensive in Gaza.

* * *

Hezbollah Strikes Israeli Army Posts:  Iran-backed Hezbollah attacked two Israeli army posts near the border with Lebanon in response to what the militant group said was the killing of Lebanese nationals in recent days. One of the Middle East’s most powerful militias, Hezbollah said it fired guided missiles against an Israeli army post in Shtula in Upper Galilee. An hour later, it said its members used “live ammunition” to target an army post in Al-Raheb and destroyed a tank.

* * *

Israeli Shares Down 3% As War Enters Second Week:  Israel’s TA-35 stock index fell sharply on Sunday as Israel continues to strike back against Hamas targets and tensions rise on the northern border with Hezbollah. The index was down 3.3% in early afternoon, having reached the lowest levels since mid-2021. Banking stocks led the decline. The sector was down 12.3% last week “on account of volatility concerns,” the Tel Aviv Stock Exchange said. Other Middle Eastern markets were narrowly mixed.  

* * *

Israel Acknowledges Reports of Gaza Activity: Israel confirmed for the first time that there were intelligence indications of something happening in Gaza two hours before the attacks last week. The head of Shin Bet, Israel’s internal security service, spoke with military personnel about the reports, said Tzachi Hanegbi, head of Israel’s National Security Council. “Both sides assessed that this is something other than it turned out to be,” he said.

* * *

Abbas Stresses Need for Humanitarian Corridor in Biden Call:  In a phone call with US President Joe Biden late Saturday, Palestinian President Mahmoud Abbas stressed the urgent need for humanitarian corridors to be opened in the Gaza Strip so that basic materials and medical supplies such as water, electricity and fuel, can be delivered to civilians. Abbas also told Biden he rejected the displacement of Palestinians from Gaza and affirmed his rejection of the killing or abusing of civilians on both sides, calling for the release of civilians, priosners and detainees.  

* * *

Pope calls for humanitarian corridors for Gaza residents: Pope Francis called on Sunday for humanitarian corridors to allow the delivery of essentials to the Gaza Strip, which is under heavy Israeli bombardment following a bloody attack on Israel by Gaza's rulers, Hamas. "Humanitarian law must be respected, especially in Gaza, where it is urgent and necessary to guarantee humanitarian corridors and help the population," said the Pope after his traditional Angelus prayer in Rome's Saint Peter's Square.

* * *

U.S. arranges for ship to evacuate Americans from Israel to Cyprus Monday: The United States has organized a ship to take Americans out of Israel to Cyprus on Monday, the U.S. Embassy said. With Israel moving toward an invasion of the Gaza Strip, the ship will leave from the Israeli port of Haifa for Limassol, taking "U.S. nationals and their immediate family members with a valid travel document," the U.S. embassy said in a security alert Sunday. Tens of thousands of U.S. passport holders live in Israel and 29 have been confirmed killed in the Hamas attacks on October 7. Another 15 are missing and believed to be among hostages held by Hamas since the attacks. The U.S. embassy didn't say how many people would fit on the ship but said "boarding will proceed in order of arrival and is on a space limited basis." Each passenger will have to sign a document promising to repay the cost of the trip and will only be allowed to bring one suitcase. The embassy said some chartered flights would be arranged from Cyprus for onward travel.

* * *

UK Foreign Minister Urges Israel to Show Restraint:  James Cleverly called on Israel to avoid civilian casualties in Gaza and respect international law in any military operations against Hamas, saying his “strong advice” was being offered from a position of friendship.” It’s in Israel’s interest to avoid civilian casualties because Hamas wants to turn the conflict “into a wider Arab-Israeli war, or indeed a war between the Muslim world and and the wider world,” the UK foreign minister said on Sky News. His comments came hours after Prime Minister Rishi Sunak said the UK stood unequivocally with Israel, making no mention of the plight facing Palestinian civilians.

* * *

Gaza Death Toll Reaches 2,300: The number of people killed in Israeli attacks on Gaza has reached more than 2,300, local authorities said, with thousands more wounded in the past eight days. This now outnumbers the death toll of the 51-day Israel-Hamas war of 2014, according to Ashraf Al-Qedra, a spokesperson for the Gaza health ministry. The 2014 war killed more than 2,200 Palestinians, according to UN figures. At the time it was the deadliest and most destructive violence since Hamas took over the Gaza Strip.

* * *

Situation in Gaza hospitals getting ever more desperate: Medics in Gaza warned Sunday that thousands could die as hospitals packed with wounded people run desperately low on fuel and basic supplies. Palestinians in the besieged coastal enclave struggled to find food, water and safety ahead of an expected Israeli ground offensive in the war sparked by Hamas' deadly attack. A week of blistering airstrikes have demolished entire Gaza neighborhoods but failed to stem militant rocket fire into Israel. Hospitals are expected to run out of generator fuel within two days, according to the U.N., which said that would endanger the lives of thousands of patients. Gaza's sole power plant shut down for lack of fuel after Israel completely sealed off the 25-mile-long territory following the Hamas attack.

* * *

Israel Says it Killed Hamas Military Leader:  The Israeli military said on Sunday its fighter jets killed the Hamas military leader responsible for the attack on one of Israel’s communities last Saturday, Kibbutz Nirim. In a statement, the military said this occurred Saturday night during operations that also took out Hamas rocket launchers. It said the man was commander of the Nukhba forces in Khan Yunis in the southern Gaza Strip. Nukhba are the elite Hamas military unit that Israel says trained and led the October 7 attack. Hamas has been designated as a terrorist group by the US and the European Union.

Developing