Sanctions Highlight the Importance of Gold

Over the past week, the seizure of Russian assets held abroad in Europe and the United States have been the main topic of discussion pertaining to the global financial system.  These discussions, however, have not necessarily been fruitful as you are seeing a divide in how the nearly 300 billion Euros of frozen Russian assets are to be used.  It is the United States and Canada that have aligned their viewpoints that frozen Russian reserves should be seized and used to fund Ukraine’s war defence against Russia; even though it has been deemed by many officials to be a stretch at best of international law to do so. Further to that, the European members of the G7 and Japan agree with the freezing of assets but are leaning in opposition to stealing the Russian assets outright, as what they appear to fear most is twofold: a retaliation from Russia, and the reaction of other countries that may rush to remove their assets from European banks out of fear their assets are next.

Initially, it was Saudi Arabia and China that were the loudest opposition to this idea becoming alarmed of what the implications would be of such a drastic step, with one Saudi minister wondering aloud, “Is our money safe there?”.  On a side note: that being the equivalent to citizens savings in a bank, is our money safe there?  We have seen that when banks fail, this is not always the case and this being where silver and gold have their rightful place within the monetary system as sound money.  Back to it, China for good reason would also be against the seizure of foreign held assets, as they have already seen sanctions applied to some of their major banks that were doing business with Russian institutions.  These sanctions cutting those select banks off from the international financial cross-border settlement system, SWIFT.  We have seen through international sanctions as well as through federal governments shutting down citizen bank accounts, that any wealth NOT held in your own possession is at risk and this situation is highlighting that immensely.  This may be why you have seen that it was reported China has announced more gold purchases through March, making it 18 STRAGIHT MONTHS that China has increased their gold reserves.  China, as the world’s largest importer of gold, as well as the world’s largest producer of gold, understands the importance of holding physical gold bullion as the bedrock of their national wealth to ensure, even if they get attacked financially, gold holds no counterparty risk so will be there to protect them.  It is said that even at current prices, China holds over $160 BILLION worth of gold bullion.  Extending this further, it was also reported that in the first quarter of 2024, China’s demand for gold bars and coins surged 68% year-on-year to 110.5 tonnes.  The Chinese government and their citizens alike are flocking to gold to protect them during these uncertain times.

To continue, full out seizure of another country’s assets has no precedence, so doing so, would give other countries the authority to do it right back to Europe, United States, Canada, etc. causing all out financial chaos.  Any country that would back this idea to spend frozen Russian assets, would have to fear for their own foreign held assets as a country’s reserves are held all over the globe due to how intertwined the global economy has become.  European Central Bank President, Christine Lagarde, stated, “moving from freezing the assets, to confiscating them, to disposing of them, could carry the risk of breaking the international order that you want to protect; that you would want Russia to respect.”  Her statement here is correct, once precedent has been set that countries can no longer trust one another with their reserves, the financial sector would come crumbling down due to the reliance on one another for cooperation being the foundation of the current system.  That said, with the fractures appearing more and more severe between Russia, China, and the United States and Europe we wonder if that precedent already occurred when Russian assets were initially frozen, and we are now just watching the fallout play itself to its conclusion.

With all this said, it is no surprise to us that the United States is trying to use Russian assets to continuing funding Ukraine, and that being because the amount of currency they have created in relief to this point since 2020 lockdowns and the 2022 Russian invasion, has stressed the world economy beyond belief.  They know more reckless spending will only speed up the inevitable collapse of the United States Dollar itself.  The International Monetary Fund Managing Director, Kristalina Georgieva warned that the current level of deficit spending was not sustainable and could cripple world growth if not brought under control stating, “it cannot go like this forever, because the burden on the US is going to cripple spending and to pay 17% of Federal revenue is mind-boggling”, she went on to say, “measuring the trade restrictions this would create, would be like removing Japan and Germany from the world economy.”   But how would they do that?  How could they possible slow down spending?  Each dollar is created as debt with interest, to pay the interest more dollars need to be created with more interest, and the cycle then continues.  This system has reached its end, and we are watching the transition, which is why so many countries continue to stockpile gold.  The German Central Bank Director, Joachim Nagel, stated in paraphrase that, “20 years ago, if he was asked if the Central Bank model was destroyable, he would have said ‘no’.  However, I admit, now I am not so sure.”  He would then go on to stress the importance of a digital Euro, as well as other nations central bank digital currencies (CBDCs) being developed quickly to ensure their banking model can be adapted for the future.  Another push toward non-tangible assets for the people, away from tangible assets like gold and silver, all the while, central banks added another 16 tonnes of gold to their reserves in March.  They continue to buy physical bullion, while pushing the public toward digital assets with no real inherent value.

When turning our attention quickly to Canada, you are seeing similar economic markers warning that financial turmoil is still fast approaching and that the national economy is on the decline.  It was reported that between January 1st and March 31st of 2024, 2,003 business filed for insolvency.  This is up 32% from last quarter, and a staggering 87% from this time last year.  It is becoming more and more clear that countries, businesses, and citizens alike are continuing to be squeezed by the rapid devaluation of world fiat currencies causing the cost of living to continue to skyrocket.  As individual citizens, we must recognize that we have just as much responsibility over our finances as a central bank does a country’s finances.  They have been accumulating gold since 2010, with this accumulation reaching record highs through the 2020s so far – it is clear, that through whatever is to come, central banks plan on surviving on the ocean of currency devaluation by floating on a buoy of solid gold.