John Hathaway on central banks replacing U.S. dollars with gold

At this point, one can only speculate on the reasons for the behavior of gold bullion.  There are many interrelated forces at work to explain the slump in the U.S. dollar (USD) relative to the gold price.  However, in our opinion, the most obvious is a general loss of trust in the USD as a store of value and U.S. Treasury bonds as a safe asset. 

Widespread evidence includes record purchases of gold by central banks replacing U.S. dollars and other paper currencies for bullion at a record level in 2023 (1,037 tonnes).  For central banks, unlike mainstream investors, the math on the U.S. fiscal situation dictates immediate action.  The $168 billion increase in U.S. government debt over the last 20 days equals the entire U.S. deficit in 2002, as noted by Fred Hickey in the 4/02/2024 High-Tech Strategist.  By year-end, interest on the national debt is likely to be the largest single U.S. government outlay, according to Bank of America chief market strategist Michael Hartnett (FFFT, The Forest for the Trees, 4/06/2024).  Non-U.S. investors have been voting with their feet, as the steady decline in the USD as a share of global foreign exchange reserves illustrates (see Figure 5).

~ John Hathaway, "What Does the Gold Price Breakout Mean?," Sprott Gold Report, April 10, 2024

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