Hi,
The Golden Hedge
In recent years, talks about de-dollarization happening around the world have continued to intensify as countries begin to question the need for all cross-border trades to be settled in one countries currency. Especially, due to the currency hegemon being used getting the benefit of running higher and higher debts without worry due to the guarantee that other countries will finance these debts due to their need to buy, in today’s age, United States Dollars, in order to complete world trades.
However, the big fear within the United States is that countries are going to forgo buying their debt, and actually begin to sell it off, sending mass amounts of dollars back home to chase local goods; this being a major catalyst for hyperinflation. Currently, the United States ships most dollars across seas to chase goods around the world, but if all those chickens came home to roost, the United States Dollar would very quickly become the Argentinian Peso. A currency that sits on the sidewalk in the millions without passer-byers even blinking due to there being such a diluted supply.
So where does gold come into play regarding this de-dollarization that is taking place more rapidly with every passing day?
The answer may be found in a hit piece on gold that Bloomberg put out late last week, ultimately, calling gold a failed hedge against hard times. The main messaging of the article was that gold, now that it has been holding steady for nearing a decade, has become a boring asset due to it generating no interest for its holder. Their argument is that this actually equates to a large cost to hold the shiny yellow metal, rather than say, buying up the United States debt other countries are currently trying to get rid of in the form of U.S. Treasuries. This article then takes a shot at explaining why The Gold Standard of the pre 1970s had failed, with their main reasoning being that gold backed currencies do not make gold itself more valuable to hold because gold standards usually come with a fixed price per ounce to ‘x’ number of dollars.
While that is a true statement, it is really more of a half-truth, because it blatantly leaves out the reason gold standards exist in the first place. That being to give circulating currency value, and stable value at that. If a currency is tied to gold at a fixed rate, central banks cannot dilute the currency supply at will, as gold would first need to be mined and stored in a vault so that the new currency notes could also be backed with real, tangible value. At this point, we think it is clear that people are beginning to understand that fiat currency in itself is merely just paper or plastic, commodities of very little value. Bloomberg’s article is merely just another angle that tries to convince the public that gradual inflation (increased money supply) is necessary for economic growth. But is that true?
If an economy was really becoming more advanced, would it not make more sense that as production of items become easier, more efficient, and ultimately cheaper, that the cost of buying those goods as an end consumer would go down rather than up? Cost of everyday goods going down, in other words, deflation, would benefit responsible citizens, as their savings would actually be worth more as time goes on, not drastically less. A currency backed by gold may not make gold itself more valuable in price, but it certainly would ensure the currency notes themselves held by the public continue to have an increase in purchasing power the same way gold does itself with an un-backed currency that continues to have its purchasing power drained. Gold again being the common denominator when it comes to storing value over long periods of time whether backing currency OR simply protecting from an un-backed currency; this highlighting why central banks simultaneously knock gold, while championing gradual inflation of 2% each year. These attacks on gold ensure illusionary value is transferred to the public via inflated wages to just get buy, while transferring real value to central banks and the more wealthy that purchase tangible assets like farm land, fine art, railways, industrial companies, and of course, precious metals.
The truth about gold, is that it is the ultimate store of value through difficult times because its’ supply cannot be diluted with the click of a mouse on a central bank computer. So, as central banks continue to push toward 2% inflation a year, they effectively ensure that consumer savings lose value year over year over year. The reason gold is called a “barbarous relic” by central banks, all the while they continue to buy gold at record paces is because it gives them a strong store of value while ensuring the public continues to use their fiat notes with zero intrinsic value that continue to bleed purchasing power.
It should make far more sense after reading the above why the Russian Embassy announced just two days prior to writing that they officially plan to make a gold-backed BRICS currency to settle trade. If un-backed currencies continue to inflate, gold will be there to soak up the losses of purchasing power. If gold backs a currency to stop it from inflating, giving the currency real value, it will force the world economy to adjust downward back toward the true value of all items, giving those that hold the gold-backed currency gradually more purchasing power as items become cheaper in relation. Of course, the public has been deceived into loving illusionary wealth, and the prospect of housing returning to real value for example can be frightening. However, it has become clear over the last few years that far more people are not included in this illusionary wealth cycle and struggle more and more each day just to get by. If real cost of goods became a reality, wealth would be more evenly distributed, rather that pooling in the top 1%, meaning far more people would exit from under the poverty line, and be able to contribute to society in a meaningful way. This, showing you the real power of gold, and why central banks want it all for themselves, while giving the people un-backed currency with no real value. It should make far more sense why nearly 20 countries are clamouring at the idea of joining BRICS so they can be included in what is likely to be the distribution of a gold-backed currency. Their citizenry would see their standard of living skyrocket.
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