The New RussAsian Gold Standard Is Coming

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It appears it wasn’t that long ago that the U.S. dollar was not to be questioned, and the ruble and the yuan were in the gutter. Such was the strength of the U.S. dollar that President Trump voiced desires to weaken it against other currencies to give America some trade benefits. Not that long ago, either, the ruble was approaching toilet paper status due to oil price oscillations.

Somehow, we are now inching towards the very opposite. The mighty greenback, despite being the strongest it’s been in a while, has everyone concerned. Nobody needs a lot of convincing to hear out the notions of “dollar hyperinflation” or even “the death of the dollar”. On the other hand sit the ruble and yuan. The first is looking to become a global reserve currency by force, with the second no doubt wanting the same, but perhaps content to simply be in the picture for now.

How did we get here? For as many things are in this brew, it seems very easy to answer that question. The West has too long suffered from an over-reliance: on credit, on faith and the money printers that run on it, on Chinese goods, and most damagingly of late on Russian energy. In what seems like a span of a few hours, Russia used the Ukraine attack to send a message to the West: if you want Russian energy, pay in rubles. And so the ruble went from toilet paper to one of the stronger currencies as of right now. One could argue, certainly the most stable.

Behind every great nation lies a great gold hoard. If Russia and China usurp the U.S. dollar’s status, there is almost no question that it will be done through the use of gold bullion as tender. Unlike the West, neither of these two massive nations have spent the better part of a century convincing themselves that gold is outdated and Modern Monetary Theory is, well, modern.

Just as Russia surprised many with the Ukraine invasion, so too might many be surprised by a bid to place both the ruble and the yuan in the dollar’s place. Russia already said that it views the ruble or gold as money, almost foretelling what it plans on doing. China’s stance doesn’t need repeating.

What do their central bank gold reserves look like, then? For the longest time, we heard how the U.S. gold stockpile of over 8,000 tons makes other nations’ reserves seem negligible. Now, again, it seems we might be in for a surprise. Apparently, in a move that shouldn’t surprise anyone, the U.S. has been leasing out its gold bullion due to storage difficulties. In other words, it’s not “readily available.”

Some of our more dedicated readers will remember that, when China’s official gold hoard figure was 2,000 tons, speculations were rife that it’s closer to 4,000 tons. As it turns out, China could be sitting on 25,000 tons of gold, while Russia could hold a comparatively smaller 12,000 tons.

When push comes to shove, if these two titans make a real bid for the global financial system, how much will faith in the dollar carry it in absence of reserves? Will the U.S. trying to hold onto its position not be akin to Hungary or Poland attempting to usurp the greenback? Indeed, if they did, would we not ask how they expect to become the global reserve with such a small gold hoard?

Alasdair Macleod calls such a development a “financial nuclear event,” and that’s probably not an exaggeration. Virtually every fiat currency on the planet would be re-valued overnight, drastically downwards, while global central banks scramble to recover their gold bullion in an attempt to strengthen their currencies.

If this does indeed happen, well, those who already own gold will be much better off than those who waited too long.

The End of the Gold Standard and the Explosion of Federal Debt

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The End of the Gold Standard and the Explosion of Federal Debt

2021 marks the 50th anniversary of the U.S. dollar going off the gold standard. This is a timely if sordid occasion. In response to the crisis, last year saw the Federal Reserve issue an unprecedented multi-trillion dollar stimulus in what seems to be a precursor of things to come. The influx of free-floating money has brought on inflationary concerns ranging from those depicting a late 1970s scenario all the way to a Weimar worst-case.

The separation of gold from the dollar in 1971 did much for both in the decades to come. The loss of the dollar’s purchasing power was expedited in force, and governments learned that they could respond to any crisis or even need by simply printing more money. Officials were also far less compelled to think about the consequences of government spending, and the comparison of federal debt now versus 70 years ago shows exactly that.

Federal debt growth over the last 60 years

In 1960, the federal debt amounted to just over half the size of the U.S. economy. Today, it sits at 130% of the U.S. economy, paired with a $28 trillion national debt figure that seemed unfathomable decades prior. The rise of the Modern Monetary Theory (MMT) shows just how unfathomable the debt is, along with any solution to it. Proponents of MMT say that governments should freely print more money whenever needed, and in many ways, it’s difficult to argue that MMT hasn’t already been implemented.

The M1 money supply, or the amount of currently available liquidity, rose in December by a record 67% year-on-year. And with plans for a $1.9 trillion stimulus package to be issued in the short-term, the path to inflation appears to be unavoidable.

Gold as a store of value

Gold’s tale is one of sharp contrast. The metal became available for purchase and trading in the U.S. in 1974, and by 1980, an ounce of gold was worth $850, representing a 385% increase. Many are quick to point out that this was a high inflation period for the U.S., yet gold’s value over the coming years and decades continued to grow exponentially whereas the dollar eroded.

Today’s gold price of above $1,800 attests to that, as the metal has posted a compound annual growth rate (CAGR) of about 8%. Its scarcity, liquidity, popularity and unquestionable value have made the 50-year anniversary a particularly notable one. At no point over the past 50 years were calls for a return to the gold standard louder, as it becomes clear that faith and reassurances won’t be enough to back the dollar for much longer.

How much longer can record debt last?

Whether the Federal Reserve and the Treasury Department are considering any sort of return to money backed by gold is a matter of hot debate. The enormous difficulty of returning to the gold standard stems from, and highlights, the sheer amount of money that has been printed in the meantime.

With official gold reserves at around 261 million ounces or $493 billion, the government would need to fix the price of an ounce of gold to about $100,000 to keep the economy afloat. However implausible a return to the gold standard might seem, Americans who own gold can get just as much reassurance in their investment from the inflationary policies of MMT.

In a clear example of cause and effect, each newly-printed U.S. dollar bill makes gold more valuable and the greenback less valuable. Gold’s value increases most visibly when compared to the decreasing value of the dollar.

Gold Stands to Soar in Midst of “The Great Lockdown”

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Global economic growth is projected to fall below -3% this year, and it’s exactly why Frank Holmes argues that more people must own gold. See his argument here.

As Forbes contributor Frank Holmes points out, “The Great Lockdown” isn’t just a colloquialism used to describe the current state of affairs. It is a term that the International Monetary Fund (IMF) itself has come up with to describe the economic picture, along with such dismal outlooks as predicting that the world is headed towards the worst recession since the Great Depression. And, with global economic growth projected to fall below negative 3% this year, they have no shortage of data to back up their forecast.

To Holmes, this is a wake-up call that signals it’s time for every individual to focus on preserving their savings. As evidenced by the action in the gold market so far, plenty of people around the world have indeed recognized this ominous signal. Gold has climbed roughly 13% so far this year and quickly made precious metals one of the best-performing asset classes. A look into this month’s top searches on search engine also shows that gold has piqued more interest than it has at any point over the past decade, including when the metal reached its all-time high of $1,900 in 2011.

With its exceptional performance thus far, many experts and analysts have been calling for prices that even the bullish forecasters wouldn’t have dreamt of a year or two ago. Bloomberg commodity strategist Mike McGlone recently noted that gold seems to be aiming for a reversion of its long-term mean versus the S&P 500 Index, a move driven largely due to the unprecedented amount of monetary stimulus currently taking place. If true, gold would undoubtedly move on to new highs, with Holmes highlighting a range of $2,800 to $3,000 based on the S&P 500’s current mean.

Perhaps the most notable part of this analysis, however, is that a mean reversion of this kind is far from a hypothetical scenario. In May 1990, gold and the S&P 500 were both trading inside a range of 330 to 360. For a more recent example, March 2013 also saw gold and the S&P 500 trade within a 1,500 to 1,600 range, a roughly one-to-one ratio. This makes the scenario of gold climbing to $2,800 and above in the short-term a very realistic possibility backed by historical precedent.

Yet despite the clear flock to gold and extremely bullish indicators such as this, Holmes thinks far too many people remain severely underweight on the metal. A study done by the World Gold Council (WGC) last year showed that commodity indices have a minimal gold weighting, meaning that investors whose exposure through gold comes by way of funds only receive a meager amount of benefits from an outperforming asset.

Instead, Holmes recommends a much more direct approach to owning the metal, one that involves at least a 10% allocation within a portfolio with a sizeable emphasis on physical gold. While some people might feel as if they already missed their entry point due to the strength of gold’s gains so far, Holmes notes that both price forecasts and economic predictions suggest that this is far from the case.

The Simple Reason Gold Fell with Stocks Last Week

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Although most assume that gold would have surged, this is not without precedent, with past cases resulting in massive upside for gold prices. See why here.

As the coronavirus crisis worsens throughout China and the rest of the world, the global market has seen its sharpest decline since the 2008 financial crisis. Virtually all equities plunged last week as traders rushed to dump their assets in favor of cash, with the Dow losing as much as 3,600 points within the week.

Some analysts found it curious that gold and silver prices also fell, with the metal dropping from about $1,640 to the $1,560 range during Friday’s trading session. Gold is known for its hedging properties and generally prospers as a consequence of stock selloffs, making the parallel action come off as unusual.

Yet upon closer inspection, one can see that a mutual selloff in both markets is not without precedent, and that similar cases in the past have resulted in massive upside for gold once the dust settled. Last year, much was said about the peculiarity of gold moving up together with stocks, considering the latter are seen as the metal’s biggest competitor. As gold kept climbing, however, it became clear that the metal’s numerous drivers and sturdy fundamentals were powering the gains as opposed to sentiment.

As various experts have explained, the precious metals selloff shouldn’t be of particular concern to gold investors as a massive wave of panic has taken hold of the markets. Peter Spina, president and CEO of GoldSeek.com, pointed out that some of the selling is a result of a general selloff by large funds, which recently increased their positioning in the gold market by a wide margin. Likewise, Peter Grant, vice president of precious metals at Zaner Metals, pointed out that the threat of contagion has significantly hampered physical transactions in China and India, two of the world’s biggest buyers whose bullion investors tend to favor in-person purchases.

Brien Lundin, editor of Gold Newsletter, noted that silver’s decline is also tied to diminished industrial demand, as the coronavirus has impacted both the commodity and energy markets. The already-skewed gold/silver ratio has now climbed above 95, exceeding last year’s peak and nearing its all-time high.

Despite the selling pressure from the past few days, there are good reasons to be excited about gold prices moving forward. Lundin pointed out that this kind of price action is part and parcel of any global crisis, as central banks invariably respond to damaged economies by introducing massive amounts of stimulus. The 2008 financial crisis, which ended up moving gold prices to all-time highs, was an example of investors recognizing that loose central bank policies are causing just as much damage to the economy as the crisis itself.

As in 2008, Lundin expects multiple rate cuts, quantitative easing and increased government spending in response to the crisis. Given gold’s tremendously positive response to successive and unexpected rate cuts in 2019, Lundin predicts that the coronavirus crisis will ultimately prove far more beneficial than detrimental to the precious metals market, adding that prices could retake their upwards trajectory with much greater vigor in the coming weeks and months.

Gold Was The Second Best Currency In 2014

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IN FUTURE YEARS, WHEN THE DOLLAR REVERTS TO THE AVERAGE, WHAT WILL HAPPEN TO YOUR SAVINGS THEN? THIS IS A PERFECT CAUTIONARY TALE FOR WHY GOLD IS SO VALUABLE IN YOUR PORTFOLIO.

GOLD Gold Second Best Performing Currency 2014 12262014 lg Gold Was the Second Best Currency in 2014

Given the strength of the U.S. dollar, it is surprising that gold has held its own in 2014. Even though the yellow metal lost some of its value last year, it still outperformed all major world currencies except for the U.S. dollar.

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