Gold Is the Spectre Haunting Our Monetary System
Despite the best efforts of governments and central banks, gold insists on its seat at the monetary table. The Eurozone and ECB hold 10,788 tonnes. China reports holdings of 1,788 tonnes (actual holdings are closer to 4,000 tonnes). Russia has 1,447 tonnes. Mexico, Kazakhstan, and Vietnam, among other nations, have added to their gold reserves recently.
After decades as net sellers of gold, central banks became net buyers in 2010, in part as a hedge against US dollar inflation. China, for instance, cannot dump its US Treasury holdings; a US president could freeze Chinese accounts with a phone call. China is stuck with its dollars, and fears that the US will inflate its way out of its $19 trillion debt bomb.
China’s solution is to buy gold. In the case of inflation, China’s Treasury holdings will devalue, but the dollar price of gold will soar. Gold is the 21st century weapon for financial wars.
Physical gold in your custody cannot be hacked, erased or frozen. Gold is a simple way for other countries to settle accounts without US interference.
Countries are also acquiring gold in anticipation of a collapse of the international monetary system, which has collapsed three times in the past century.
The only feasible benchmarks for a new system are the IMF’s special drawing rights and gold. Critics claim there is not enough gold to support the financial system, but there is always enough gold, it’s just a matter of price.
Based on the M1 money supplies of China, the Eurozone, and the US, and with 40% gold backing, the implied non-deflationary price of gold is $10,000 per ounce. At that price, a stable gold-backed monetary system could be sustained.
When it comes to monetary elites, don’t listen to what they say; watch what they do. While they disparage gold at every opportunity, they are buying it, hoarding it, and preparing for the day when one’s gold determines one’s seat at the table of systemic reform. It’s past time to claim your seat with an asset allocation to physical gold.