A Scramble For Gold Has Begun

A Scramble For Gold Has Begun, by Tyler Durden. Well, perhaps it has on a time scale of years rather than of days. Big picture article beginning in 1914. Let’s move forward to today:

China has $3.2 trillion in reserves, over half of which is denominated in US dollars, mostly US Treasury notes. … If Chinese selling of Treasuries became a threat to US interests, a US president could freeze Chinese accounts with a phone call.

The Chinese know this. They are stuck with their dollars. They fear, rightly, that the US will inflate its way out of its $19 trillion mountain of debt.

China’s solution is to buy gold. If dollar inflation emerges, China’s Treasury holdings will devalue, but the dollar price of its gold will soar. A large gold reserve is a prudent diversification.  Russia’s motives are geopolitical. Gold is the model 21st century weapon for financial wars.

The US controls dollar payments systems and, with help from European allies, can eject adversaries from the international payments system called Swift. Gold is immune to such assaults. Physical gold in your custody cannot be hacked, erased, or frozen. Moving gold is a simple way for Russia to settle accounts without US interference.

Countries are also acquiring gold in advance of a collapse of the international monetary system. The system has collapsed three times in the past century. Each time, major financial powers came together to write new rules.

It has been 30 years since the Louvre Accord [1985]. This does not mean the system will collapse tomorrow, but no one should be surprised if it does. When the financial powers next convene to reform the system, there will be no appetite for the dollar’s exorbitant privilege.

The author even takes a stab at the exchange rate of US dollars for gold after the system resets:

Based on the M1 money supplies of China, the eurozone, and the US, and with 40pc 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, watch what they do, not what they say. While elites 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 possible, but it seems hard to believe until the current debt-based paper currency system cracks up under the debt load.