DE-DOLLARIZATION - GOLD'S LONG TERM WEAPON

 

If the cornerstone of the global economic system is Liquidity and Trust - both indicating trends supportive of a higher gold price - the third pillar of the gold story is really a direct result in rapidly rising dollar liquidity and a rapidly plunging Trust in the US System that suppots the global dollar hegemony.

This is the De-Dollarization that is being actively engineered by China/Russia/Iran with strong support from commodity rich Saudi Arabia, UAE, Argentina, Ethiopia, and a host of African and South American countries with bilateral mining agreements with China and Russia.

Now, the dollar is supported not only by the World's strongest and deepest economy with the world's most powerful military but also by a Eurodollar system that is five times as deep as the US economy.  So the dollar isn't going to be replaced overnight.

But that's not the point, is it?

The point is that all investing value turns at the margins.  And now that Biden has weaponized the dollar against Russia following Trump's Trade War that attempted an early stage weaponization fo the dollar against the entire globe - and further weaponization is being threatened against China should they invade Taiwan for example - every country that uses the dollar as part of their own reserves is rapidly De-Dollarizing.

What does that mean.? 

A) All countries have stopped buying US Treasuries at a time when the US has an overwhelming need to ramp up Treasury Issuance.

B) That means the Fed will have to step in and buy US Treasuries in order to keep long rates from blowing out.  This weakens the dollars, increases real inflation, and institutes effective Yeild Curve Control.

C) All countries switching out of US Treasuries as part of their Currency Reserves must replace the dollars with something - and that something for China and Russia and many other countries includes a healthy increase in their Gold purchases.  

Not all these increases show up immediately in the price structure US futures dominated gold market.  But over time, it put inexorable upward pressure on the gold price.

Because the US Gold Futures market is dominated by the Federal Reserve Bank of the US that can trade through proxies like JP Morgan (a principal owner of the Fed) in size that can not be matched by any private  institutional traders - the US futures gold price can be managed.

But managing something that trades Globally on markets throughout the Global Economy can only be a temporary measure.  Over time, as massive Government purchases in China, Russia, Iran, Saudi Arabia, UAE, Argentina, India, continue and accerlerate you will see the Gold price rise.

And many of these countries - especially China - are strongly encouraging their private population to purchase gold as a means of securing their own private wealth.

What happens when Americans eventually catch on?  We may be slow to catch on,  but once a trend gets established we can be very persistant.