The World Bank said it expects gold prices to rise 3% in 2022, but warned that the price could fall sharply if the Russian central bank decides to unload large quantities of the commodity.
The Russian Factor
After the price of gold surpassed the $2,000 mark in early March, a new World Bank report predicts that the value of the commodity will rise by only 3% in 2022. However, the bank said it expects prices of commodities such as food, which have risen 84%, and crude oil to remain high for most of 2022.
While some gold advocates predict that the price of the metal is likely to reach a new all-time high, the World Bank in its report expects a possible sharp drop in prices in 2023. The bank points to the possible unloading of large quantities of gold by Russia as one possible factor that will drive the price down.
“In the long term, gold prices could be affected by the Bank of Russia’s policies, and if it starts large gold sales, prices could fall significantly,” the report said, citing the bank’s latest forecast document.
When Russia, cut off from the global financial system, resorts to selling large amounts of gold as a way to raise funds, the resulting oversupply is likely to cause the price of the commodity to fall.
Meanwhile, some reports suggest that Russia is considering backing its currency with gold. Although it is not yet clear when this will occur, the prospect of a major country backing its currency with gold could indicate a further rise in the price of this commodity.
The return of the gold standard
The prospect of Russia returning to the gold standard has also revived the debate about the feasibility and usefulness of gold-backed cryptocurrency tokens. Several such tokens have been issued, but only a few are functioning. There are many reasons why some gold-backed cryptocurrency tokens have failed.
So to learn more about why some gold-backed cryptocurrency tokens have failed, what the future holds for them, and what the prospects are for Russia to return to the gold standard, Bitcoin.com. News turned to the opinion of Tony Dobre, a 40-year veteran of the precious metals industry and non-executive advisor to fintech startup Aurus Below are Dobra’s written responses to questions sent to him via Linkedin.
Bitcoin.com News (BCN): Although gold has been on an upward trajectory since the war between Ukraine and Russia began, the price has so far failed to break the $2,100 mark, despite predictions that it could break the $3,000 mark. Do you believe gold will ever hit the $3,000 an ounce mark in the next five years.
Tony Dobra (TD): Gold trading volumes are at an all-time high. The price is volatile, but currently under pressure. Predicting prices is like reading tea leaves or goat entrails; it’s a parlor game, not a science. Nevertheless, both what’s in bed now, rather than transitory inflation, and the long-term situation in Ukraine should bring gold to $2,100 later this year. After that, anything is possible. I would say $3,000 is more likely than not.
BCN: Does gold’s resurgence mean that cryptocurrencies are now less attractive to investors.
TD: I think they are different markets, so both should attract investors. It’s good to have diversity. Is it wise to invest in products that move in parallel. What kind of diversification does that achieve. I think most large investors like a portfolio of uncorrelated products.
BCN: Let’s talk about digital tokens/currencies backed by gold. We’ve seen a lot of gold-backed tokens, but it’s fair to say that many of them have failed. Do you know why they failed.
TD: There was a whole variety of these products; as you say, most of them failed, but for different reasons. The two most common are that they were either created by digital experts without deep knowledge of the gold market, or, conversely, by gold traders who didn’t hire the right digital experts. In both cases, experienced investors smell a lack of full expertise. This applies to young cryptocurrency investors as well as old-school ultra-conservative investors.It’s all about how comfortable you are with the product.
BCN: What do you do differently that convinces you that your token will succeed where others have failed.
TD: To begin with, Aurus was founded by traders with digital skills with enough knowledge to know their own limitations and the skills to hire the best people with the appropriate skill set and experience. It has created an ecosystem that includes all the elements of an efficient marketplace, be they storage, processors, traders, investors, service providers and technical support.
What’s even more interesting is that professional traders make their money on volatility, not just buying and selling. The more the price moves, regardless of direction, it creates supply and demand and thus trading opportunities. Aurus used this knowledge to create the AWX token, which generates income for the owner by taking a smaller percentage of each transaction in the ecosystem. The higher the number of transactions, the higher the income and the higher the value of the AWX token.
BCN: Many influencers have concluded that bitcoin is a digital form of gold, and some have suggested that gold will lose its position as the most ideal alternative to fiat money even in volatile times. Nevertheless, as the events of the past few weeks have shown, gold is still seen as a safe asset. Do you foresee a scenario in which bitcoin actually displaces gold and becomes the most sought-after alternative store of value.
TD: Another “can you look into your crystal ball” question. I think that in a perfect world without wars, crime, and inflation, bitcoin (BTC) would be the currency of Utopia. However, in a world where people are displaced and lack access to reliable electricity, where networks are hacked and sponsored by governments, a few gold coins have the upper hand. Gold is the most basic form of trade after direct barter. What is the immediate value of an iPhone with a dead battery in a store where there is no electricity. People say that gold is a relic of history, but are we progressing toward a more equitable, abundant and peaceful world, or are we regressing to war and famine.
BCN: Some reports suggest that Russia, hurt by sanctions, may shore up its currency with gold. Do you think it is possible for Russia to back its currency with gold.
TD: It’s not so much “possible” as likely. Like energy commodities, Russia is also rich in precious metals. Its now favorite trading partners, China and India, are the two largest buyers of gold in the world, followed by their friend Turkey. Backing the ruble with gold will appease their new friends and create a trading bloc not tied to the U.S. dollar.
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