People are losing more than they gain. An expert explains how rising gold prices are affecting the finances of Uzbekistan's citizens.

Why does the price of gold fluctuate, what benefits does this bring to our country as one of the largest producers of precious metals, and can ordinary Uzbeks profit from the rising quotations? Shukhrat Bobokhujaev, head of the sector for organizing scientific research activities for gifted students and associate professor at the "Oil and Gas Economics" department of the branch of the Gubkin Russian State University of Oil and Gas in Tashkent, shared his insights with a correspondent from Podrobno.uz.

Growth in Demand and Global Instability

The expert noted that various factors influence the price of goods or services in market conditions, primarily the demand from buyers and the supply from sellers.

According to him, the current changes in the price of gold have ceased to follow most established correlations with other assets that have been observed for centuries, and have begun to move on their own path. This development has taken many experts and specialists by surprise.

"Over the past year, the price of an ounce of gold has increased from $1947 to $2665, which is a 41% rise. Analysis shows that one of the reasons for the recent increase in the precious metal's cost has been the growing demand from global central banks. Countries are eager to diversify their gold and foreign exchange reserves (GFR) by boosting the gold share. After all, any of them could find themselves in a situation like Russia's, where reserves of $300 billion were frozen in violation of international law," said Bobokhujaev.

He also mentioned that this is linked to instability in the global economy and the risk of a global downturn, as well as geopolitical tensions worldwide – such as military actions in Gaza, Lebanon, Iran, and Ukraine.

Additionally, the rising national debt of the United States, which has reached record levels and exceeded $36 trillion for the first time, plays a role. The outcome of presidential elections in the country, the anticipated reduction in the American Federal Reserve's interest rates, and the potential creation of an alternative to the dollar payment system – all these factors could also impact the quotations of the precious metal.

"The reasons may include increased demand from industrial and jewelry enterprises, monetary policy and changes in the discount rate, currency and US dollar exchange rates, inflation levels, and the growing investment appeal of gold. Today, this precious metal accounts for only 3% of all investments worldwide, indicating a vast potential for investors," Bobokhujaev explained.

Safety Cushion

The rise in gold prices allows gold mining companies to anticipate increased profits and reduced production volumes. The government directly benefits from this through the growth in gold and foreign exchange reserves (GFR).

According to statistical data, Uzbekistan extracts about 100 tons of gold annually, with only 6% used in production.

"The remaining portion of the extracted precious metal serves as a resource that replenishes reserves with gold and foreign currency in case of its sale on the external market," the interlocutor noted.

He emphasized that the greater the physical share of the precious metal in GFR, the higher the benefit when confidence in the currencies in its composition declines. According to data from the World Gold Council, the share of gold in Uzbekistan's assets has increased by more than 32% from 2014 to the second quarter of 2024 – from 274.6 tons to 365.1 tons.

"Thus, as of the second quarter of this year, the volume of gold in Uzbekistan's reserves was 75.2%. This is a high figure, even compared to the USA, which had just over 72% at that time. For China, this figure was over 4%," the expert stated.

According to the Central Bank, as of January 1 of this year, the volume of gold in the republic's assets was 370.15 tons, and by October 1, it had increased to 373.25 tons.

"In fact, reserves increased by 3.1 tons over the nine months of the year. Considering this, along with the rise in gold prices since the beginning of the year, the reserves have appreciated by $7.2 billion," Bobokhujaev noted.

Looking at the picture over the past 19 years, the country's gold assets, according to the Central Bank, have grown more than 55 times – from $494 million to nearly $27.4 billion.

At the same time, it should be noted that in the past two years, the physical volume of gold in the republic's reserves has decreased by almost 30.8 tons. However, during this period, Uzbekistan's gold mining industry managed to increase production by 23%. Last year, the country produced 119.6 tons of precious metal.

"Given the increase in gold production and the reduction of its share in the republic's GFR over the past two years, it can be concluded that the produced precious metal is actively sold on the external market," the expert pointed out.

Gold accounts for an average of over 20% of the total export volume of the republic, with the highest volume sold in 2020 – 38.3%.

Benefits for the Population

The rise in gold prices can also benefit the population.

"The indirect benefit to the population from the increase in gold prices is linked to the growth of the country's gold and foreign exchange reserves. This allows the country's economy to develop steadily and improve the welfare of its citizens," Bobokhujaev noted.

Furthermore, individuals can invest in the purchase of gold coins, bars, and jewelry for future resale, as well as to protect their assets from inflationary losses.

However, according to the expert, the population of Uzbekistan, except for a small portion, lacks such experience. Therefore, the public is likely to lose more from the rise in precious metal prices.

"This is because purchasing power will decline. In this case, not only jewelry but also electronics and household appliances, which use gold components in their production, will become more expensive," the interlocutor concluded.