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Default concerns

Over the last 2 years, there has been a meaningful increase in gold purchases by Central banks. In the chart below you will find an interesting survey where central bankers highlight the main factors/reasons why the hold gold as reserves. The number one reason is “no default risk”. Let that sink in for a few seconds. At a moment of all time highs in the equity market, narrow credit spreads and aparent economic bonanza, the main concern for the people that run global monetary policy is default risk. Perhaps the high levels of government debt in Developed Markets are starting to decrease confidence in the fiat part of economic systems. If that is the case, it tends to be a self fulfilling prophecy, as lack of trust implies less government debt purchases or even sales, at a time of high indebtedness and high deficits. Currencies are the canary in the coal mine.


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