"Buying Gold Instead of US Treasuries"... Movement to Reorganize Global Foreign Exchange Reserves Centered on BRICS

Changes in the asset compositions of central banks are being detected, such as the proportion of US Treasuries decreasing and the proportion of gold increasing in global foreign exchange reserves. In particular, the gold buying trend is continuing, centered around countries that are in opposition to or take a neutral stance toward the United States.

Decrease in Strategic Reserves and Upward Pressure on Oil Prices

According to a video from the YouTube channel 'Hong Chun-uk's Economics Lecture Notes', recent international oil prices are showing unstable trends along with the impact of war. Dr. Hong Chun-uk, a participant in the video, cited the 'strategic petroleum reserves' released by the United States and China as a major factor that suppressed the rise in oil prices last summer. He diagnosed that while the US and China released strategic reserves at that time to offset the shock of war and stabilize the market, these reserves are currently decreasing, leaving a lack of means to suppress rising oil prices.

Dr. Hong explained, "While high oil prices are a problem, in a situation where the strategic reserves of each country are all decreasing, there are no longer any ways to suppress the rise in crude oil prices or induce stability." He added, "I am worried that the shock of rising oil prices might go directly to consumers."

Falling Copper Prices and Leading Indicators for the Semiconductor Industry

The volatility of copper prices, another key indicator in the commodities market, was also pointed out as a variable to watch. Copper prices serve as an indicator with strong leading properties for the export prices of South Korean semiconductor products. The video explained that during the super cycle of 2016, the battery/bio/internet cycle of 2021, and the recent AI cycle, South Korean export product prices rose after the decline in copper prices stopped and turned upward.

Dr. Hong expressed concern regarding the recent trend. He said, "Copper prices have fallen significantly recently, and this is an indicator that holds quite strong leading properties for our country's semiconductor products," and "It is worrying that indicators showing adjustments in copper prices are appearing along with the recent US ISM Manufacturing Index." He also mentioned the need to monitor the movement of leading variables, such as the CEO of Entropy's Armodei proposing to delay the AI development schedule.

Decrease in US Treasury Proportion and BRICS Gold Buying

The most noticeable change is the shift in asset proportions within global foreign exchange reserves. According to the video content citing reports from the US Fed, while the proportion of US Treasuries in the foreign exchange reserves of central banks worldwide is continuously decreasing, the proportion of gold is rising, appearing to become larger than US Treasuries recently.

Behind these changes lie issues regarding trust in the US dollar, the expansion of the US fiscal deficit, and the increase in Treasury issuance. A particularly noteworthy point is that the entities purchasing gold are the 'BRICS' nations. BRICS includes countries such as India, China, Brazil, and Russia, and among them, there are countries in hostile relationships with the US, as well as countries classified as a neutral 'non-aligned camp' like India or Brazil.

Citing a specific paper, Dr. Hong explained, "There was a surprising discovery that the more a country opposed or abstained from US agendas at the United Nations General Assembly, the more gold they purchased in their foreign exchange reserves." Synthesizing this, he analyzed, "It appears that countries in the opposing camp to the US feel no need to hold the US dollar or Treasuries and are increasingly moving toward gold."

Limited Rise in Gold Prices and Long-term Value

Despite the continuous gold buying trend, the reason gold prices are not surging is due to high US interest rates. In a situation where US Treasuries provide interest of over 5%, holding gold, which has no interest, can be a burden in terms of opportunity cost.

Dr. Hong evaluated the attractiveness of gold from a long-term perspective. He explained that the preference for gold as a substitute for the dollar is a long-term factor, including the expansion of the US fiscal deficit and the fact that President Trump is acting in a way that seems to undermine the independence of the central bank.

He took a cautious stance regarding short-term profitability. He stated, "Since there is much uncertainty depending on the attitude of the Fed or the attitude of Chair Jerome Powell, I cannot say decisively that if you buy now, you will see a profit immediately in a month." However, he added, "If viewed only within the long-term economic environment, gold is a quite attractive segment that cannot be left out of an investment portfolio."