Gold rush continues with $17bn mega-deal

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  • Turkey was hit by a second earthquake after more than 1,900 were killed by the biggest tremor in 80 years, causing destruction across the country and in neighbouring Syria.

  • Recriminations continued over the US decision to shoot down China’s weather/spy balloon at the weekend. Here’s our explainer on the affair.

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Good evening.

A $17bn takeover bid — potentially the biggest acquisition deal this year — has thrown the spotlight on the surging global demand for gold, driven by huge purchases from central banks as well as retail investors seeking protection against inflation.

The move by US-listed Newmont, the world’s biggest gold miner, to buy Australian rival Newcrest, could spark a bidding war as other groups look to consolidate.

A deal would reunite the companies. Newcrest was originally established as Newmont’s Australian arm in the 1960s before being spun out in 1990 after it merged with BHP’s gold assets. It would also put four of Australia’s five largest gold mines under the control of one company and require Australian government approval.

The increase in gold demand to a record 4,741 tonnes last year — the highest in a decade — has been fuelled by “colossal” purchases from central banks, led by China and Russia. Its status as a safe haven asset at a time of geopolitical upheaval has been turbocharged by the “mistrust, doubt and uncertainty” that has followed the decision of the US and its allies to freeze Russia’s dollar reserves.

Prices have also been buoyed by the expected slowdown in US interest rate increases.

Line chart of $ showing the gold price

The last time the world experienced this level of buying marked a big turning point in the global monetary system. A European rush to buy US gold in 1967 led to a run on the price, the collapse of the London Gold Pool of reserves and the eventual end of the Bretton Woods system that tied the value of the US dollar to the precious metal.

And while disruption from the war in Ukraine has helped make gold a sought-after asset, it is also useful for would-be sanctions busters, notes Jonathan Guthrie, head of the FT Lex column. Bullion can be traded much more easily beyond US oversight than dollars.

Given its history of embroilment in money laundering, sanctions enforcers might want to take a close interest in the London market in particular, he suggests. More than 9,000 tons of gold, worth more than $500bn, sits in repositories within the M25 — more than in Fort Knox.

Need to know: UK and Europe economy

Today’s action by nurses, ambulance workers and paramedics in England and Wales is the biggest strike in NHS history. As the health system nears its 75th birthday, global health editor Sarah Neville tackles the big question: is the NHS broken? The head of pharma company Sanofi said UK economic policy meant the country was falling behind in healthcare innovation.

The “wrecking ball of higher inflation and interest rates” has led to UK construction activity hitting its lowest level of activity in more than two years, according to new PMI survey data. Bank of England policymaker Catherine Mann said it was too early to be sure high inflation had been defeated and that more interest rate rises were likely.

Need to know: global economy

US president Joe Biden gives his state of the nation address tomorrow. Our latest Big Read examines his case for a second term and whether good news on job creation — as evidenced in Friday’s bumper figures — could override voters’ anger over inflation.

While foreign tourists have returned, many Japanese are still reluctant to travel for fears of catching Covid-19, as well as the weakness of the yen. Before the pandemic, about 20mn Japanese citizens travelled overseas each year and spent $21.3bn, according to the UN World Tourism Organization.

The head of Anglo American, one of South Africa’s biggest investors, warned that the country’s economy was under threat from power cuts, logistical problems and corruption.

An export boom and the end of pandemic restrictions helped Indonesia’s economy to expand at the highest rate in almost a decade last year. Gross domestic product growth of 5.3 per cent was fuelled by a 16.3 per cent jump in exports, led by commodities such as coal.

Millions of former dabai or “big whites” — the hazmat-suited workers who enforced China’s strict pandemic restrictions — have been left jobless, disillusioned and angry by the abrupt end of Beijing’s zero-Covid policy.

Need to know: business

The Premier League accused Manchester City of breaching financial rules after a four-year investigation into the English football champions. An independent commission will have the power to impose sanctions, including “unlimited” fines, points deductions or even expulsion from the league.

A $3.9bn accounting scandal surrounding retail chain Americanas has shaken Brazil, ensnaring some of the nation’s richest men and sparking bitter recriminations and accusations of fraud.

Financial markets are rallying as fears of an economic slowdown start to fade and investors pile back into riskier assets. “Markets are pricing in the end of the inflation problem and . . . very heavily discounting the risk of a tail event,” said one research chief.

Line chart of Cboe 30-day and 1-year volatility indexes showing volatility expectations have tumbled

The search wars are back, this time focused on the use of artificial intelligence. Big Tech companies are using their cloud computing arms to pursue tie-ups with AI start-ups, sparking questions about their role as both suppliers and competitors in the battle over “generative AI”. Columnist Rana Foroohar warns of the dangers of important regulatory decisions being left to experts behind closed doors.

While global air travel is recovering, the US domestic market has been hit by cancelled flights, missing bags and disappearing routes, spurring calls for tighter regulation. The boom in online shopping and congestion at ports drove a big increase in air freight during the pandemic, but will the growth continue as shipping problems ease? Watch our new video.

The world of work

Organisations need to rethink conventional career timetables and introduce elements such as a “mid-life MOT” if they are to lure back older workers, says columnist Camilla Cavendish.

How long could you survive without a regular income? Here are some tips on how to survive the financial shocks of redundancy.

Some good news

Chinese researchers have discovered a way of producing hydrogen by splitting seawater without the need to desalinate or purify it first. FT science commentator Anjana Ahuja explains the technology and its significance.

Working it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up here

The Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up here

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