Central banks around the world have dumped $48 billion in Treasuries since late March alone. At the same time, central banks keep buying gold, continuing a trend that began years earlier.
A recent survey from the World Gold Council found that geopolitical instability and potential trade conflicts are chief reasons why central banks in emerging economies are shifting toward gold at a much faster rate than those in advanced economies.
BofA estimated the central banks’ gold holdings are now equivalent to just under 18% of outstanding U.S. public debt, up from 13% a decade ago.
“That tally should be a warning for US policymakers. Ongoing apprehension over trade and US fiscal deficits may well divert more central bank purchases away from US Treasuries to gold,” analysts warned.
Meanwhile, the market still doesn’t appear to be overexposed to gold. BofA estimated that investors have allocated just 3.5% of their portfolios to gold.
And regardless of how Congress ends up rewriting the budget bill, analysts said deficits will remain elevated.
“Therefore, market concerns over fiscal sustainability are unlikely to fade no matter the result of Senate negotiations,” BofA predicted. “Rates volatility and a weaker USD should then keep gold supported, especially if the US Treasury or the Fed are ultimately forced to step in and support markets.”
This story was originally featured on Fortune.com
