Gold is money. Everything else is credit.—John Pierpont Morgan
The current state of global trade dynamics is one where once mutually beneficial trade partnerships have crumbled to a potentially irreparable state. EuRussia and ChiMerica benefitted Europe and the US via cheap Russian gas and Chinese imports while allowing Russia and China to grow stronger and wealthier. However, as the honeymoon phase faded, the US began to feel threatened by China’s increased strength and global influence and viewed its G5 initiative with growing suspicion, while Europe, under US guidance, found Russia’s “special military operation” a pill too hard to swallow. China and Russia, for their part, began to tire of the West’s bullying of other nations, unipolarism, and rules-based order that applied to thee and not to me. This shared discontent with the West brought China, Russia, and other nations similarly at odds with the US, closer together. As the sides become further polarized, each are utilizing weapons of economic destruction to attack and counterattack (1).
However, the geopolitical landscape is rife with hidden undercurrents, and the obvious sides are far more convoluted into smaller factions that sometimes appear to also be fighting amongst themselves. One can look at what is taking place politically (2), as well as economically (3) in Europe and the US and see that a united Western front is far from cohesive (4).
One such example is the Fed’s ongoing rate hikes. Under the context of fighting inflation in an inflationary environment driven by excessive money supply and/or supply-constraint, rate hikes appear to be a deeply illogical approach that is running the US’ recessionary economy and its markets into the gutter. It seems, therefore, the true motive for raising rates is to raise the dollar’s strength while debasing other fiat currencies (5). The question then is, why this approach? Why is the Fed single-mindedly pursuing a strong dollar at any expense? And so, the plot thickens (6). If the end-goal of the Fed is to wiggle out from under Davos' seat of control in the US (the Biden Administration), it would make sense that they’d be willing to pay any price to achieve that goal and regain their sovereignty (7).
However, a strong dollar—not in the sense of its purchasing power nor its status as reserve currency (both of which remain compromised), but merely in comparison to other fiat currencies—is problematic on a global scale, both because of its global demand as being less unstable than other major currencies (ie: euro, GBP, yen) (8), and for the fact that much of global trade is priced in dollars (9).
Financial System: East vs West
The geopolitical tensions between the East and the West and repeated weaponization of the dollar, coupled with the overall weakening of the dollar as a reserve currency makes the idea of an alternative basket of gold-backed currencies increasingly attractive to a large chunk of the rest of the world. Not only would it be harder to weaponize, but a gold-based currency would provide protection against price volatility.
Further, given the West is currently in an energy crisis due to bad policies, a successful implementation of a gold-backed currency, would mean significantly cheaper—nearly free— energy for the East. Free energy makes for further industrial and economic expansion, meanwhile the West will be facing economic stagnation due to sky-high energy prices. However, as the chart below demonstrates, it’s not that energy costs more, rather that the dollar’s purchasing power is far less.
Any nation or group of nations attempting to create an alternative reserve currency would need to have a significant amount of bullion to back them up. There is a massive discrepancy between official US reported gold reserves and independent data sources. The World Gold Council and World Bank report somewhere within 400 to 500 trillion dollars worth, while CEIC data indicates just over 11 billion (10). Russian reserves, however, are pretty much agreed upon, and Russia may be on its way to being the largest monetary gold reserves holder in the world (11). Furthermore, Russian gold continues to flow into Switzerland (12), indicating that Russia retains sufficient reserves in its holdings.
Therefore, while exact amounts for gold reserves are unclear, informed speculation of the amount held between Russia, China, and the other SCO member states likely hold, would suffice for such an endeavor (13).
The Case for Gold
Russia, apparently prompted by the EEC and backed by the Eurasian Economic Union, BRICs and SCO nations, is taking things a step further, creating a new, independent precious metals market as a counter to the LBMA (14). This initiative, if successful, could not only sign the death warrant of the western financial stability, but could prove to be the catalyst to end gold price manipulation, prompting a global monetary reset (15). Not, however, the one planned by the Davos crowd which would degrade the financial system to a governmental controlled cashless society tracking all transactions through central bank digital currencies, but one that is based on tangible wealth. Under this circumstance, any move by the Davos crowd to compete by partially backing their CBDCs with gold will only serve to further increase gold’s price value (16).
This makes the case for gold not only interesting, but likely essential, to ride out the coming turmoil (17), not only to preserve, but also to expand one’s wealth (18).
According to The Silver Institute, Indian silver imports have reached a record high, while silver has been bleeding out of the LBMA, bringing the amount left in its holdings to just over one year’s supply (28,506 tonnes) of the estimated world annual silver mining production (26,262 tonnes)—an all-time low. Further, over 63% of the remaining silver is already spoken for in the form of ETFs (19). COMEX is facing a similar shortage. This not only indicates that the West’s control over the bullion market is increasingly shaky, it more interestingly raises the possibility that India (as a member of the SCO) is potentially hoarding silver for industrial use, particularly in the context of creating a commodity-backed currency.
The current recession and potential depression looming over the US and Europe, combined with ever-rising energy prices indicates that the West is in for a rough several years. On the other hand, the Eastern initiative to create a gold-backed reserve currency to rival the dollar not only spells potential for huge industrial growth due to extremely low energy costs, but indicates a massive rise in gold’s value is likely on the horizon. This makes a strong case for further investment into precious metals, and gold in particular.