What They're Buying Instead

Central banks have been stepping away from the dollar for twenty-five years. And they've been buying something else with both hands.

Lau here, and for once not from a hotel room.

There's a chart I wanted to share with you this Monday. It shows the dollar's share of the world's allocated foreign exchange reserves. In plain English, how much of the money central banks hold in reserve sits in dollars rather than euros, yen or anything else.

As you can see, the dollar accounted for 71.5% of those reserves as recently as 2001. By the end of last year that was down to 56.4%, the lowest reading since 1995.

Watching the dollar’s story unfold is a bit like watching a train wreck in very slow motion. Year to year, nothing much happens. You even get a bump here and there. But step back far enough and the trajectory is unmistakable. Fifteen percentage points, gone.

All of this was back on my mind last week while I was putting together SNAFU Investing's first monthly issue, which went out on Saturday (linked here and below, along with the other piece from last week).

There’s a reason the inaugural issue carries a gold recommendation, and the chart above is a good deal of it. Because the obvious question it raises is what those same institutions have been putting their money into instead.

Gold.

As I show in the issue, since 2022 central banks as a group have bought roughly 1,000 tons of it a year. About double what they averaged over the previous decade. And when the price spiked earlier this year and buying tailed off for a quarter, what did they do in the next one, after the price had fallen? Came back with a vengeance. 289 metric tons.

Which brings me to the part of the story I find most interesting, and the reason this month’s pick is what it is.

The world wants more gold, yes. The trouble is, the mining industry simply isn’t finding enough of it.

I get into all of that, and a good deal more, in the issue. So if you’re a paid subscriber, make sure you haven’t missed it. If you're not, the lead is free to everyone (and if you've been on the fence, this might be a good moment to come inside).

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From the Comments

One of the things I’ve come to appreciate most about writing here is the conversation that happens in the comments. Here are five that stood out last week, for different reasons. Each one links back to the piece it appeared on, so you can click through if you’re interested in the context.

Thanks again to everyone who left a comment last week. I read all of them, even the ones I don’t get a chance to reply to individually. Over the coming days, I’ll try to catch up on the questions and the longer threads.

Regards,

Lau Vegys

P.S. On a slightly related note, one of our precious metals positions in the portfolio started building its new mine last week. Fully financed, no debt, and no trip back to the market to pay for it. The money is coming from cash on hand and the mine it already operates.

That’s about six weeks from recommendation to groundbreaking with nothing having gone sideways in between, which in this sector is worth noting.

Paid subscribers, a proper alert follows tomorrow.