Gold is the real de-dollarization play – Nassim Taleb

 

De-dollarization has become a trending topic amid the rising strength of the BRICS bloc and surging U.S. debt. But according to one analyst, while many are focused on competing currencies or digital assets, the real de-dollarization play is gold. 

 

“People are not seeing the real ‘de-dollarization’ in progress,” essayist and mathematical statistician Nassim Taleb said in an X post. “It is not [about] trade settlements. Transactions are labeled in USD, as an anchor currency, but central banks (particularly BRICS) have been storing, that is, putting their reserves, in Gold.”

 

“Gold is up ~30% y-o-y,” Taleb highlighted. 

 

Luke Gromen, founder and president of Forest for the Trees, responded with the following chart, noting that “It's quietly been underway for 10 years; got much louder post-2022 sanctioning of Russian FX reserves.”

 

 

As Gromen mentioned, chatter about de-dollarization has been on the rise for the past several years. The decision to freeze Russian assets after the country invaded Ukraine served as a wake-up call for those who held large portions of their reserves in U.S. Treasuries.

 

Geopolitical and financial analyst Angelo Giuliano posted the same chart as Gromen, saying, “De-dollarization is happening.”

 

“Instead of buying US debt, countries are buying GOLD,” he added. “The US dollar Ponzi scheme is collapsing...the US exorbitant privilege to print endless amount of paper toilet currency is over. Gold hit an all-time high today [Sept. 12]. +30% yearly performance. Only the beginning.”

 

X user The Parabolic responded to Taleb’s post by noting that “The emerging monetary order can be summed up using Jevons' 3 key functions of money: store of value, unit of account, and medium of exchange.” 

 

“It is a historically odd and an aberration to have USDs/USTs serve all three roles,” they said. “Between 1922 (Genoa Conference) and 1971 (Nixon shock), the Anglo powers removed physical gold as the international store of value. They replaced gold with  government promises (banknotes, bonds, etc.), and the resulting debt-based system is extremely unstable, requiring ongoing quick fixes to not blow up.”

 

Taleb “shows that while the USD instruments can function as a medium of exchange and unit of account, their role as a store of value is being questioned by some of the world's largest economies,” The Parabolic said. “BRICs et al wanna take us Back to the Future.”

 

And touching on Taleb’s point that transactions are labeled in USD, author Richard Turrin noted that the “dollar's high percentage in trade settlements is increasingly meaningless,” as “1) Gold holdings show reserve storage, and 2) Migration of trade to alternate currencies isn't captured on SWIFT statistics.”

 

“The US will tout the USD's high percentage use in trade all the way to the bottom,” Turrin said. 

 

OUR ECONOMY and GOLD IN 2 CHARTS

 

THIS CHART SHOWS A PROPORTIONAL REPRESENTATION OF THE FINANCIAL SECTORS OF THE ECONOMY

This chart puts some dollar values on the various financial sectors.

There is no collateral for almost all the Credit based Derivatives that make up the vast dollar amounts involved in our Financial Economy.  (2-4 Quadrillion dollars in derivatives alon)

The entire multi Quadrillion dollar derivatives sector of our economy is comprised of UNSECURED DEBT where the counterparty risk is spread across all sectors of the economy,

However, much of financialized sectors below that also includes unsescured debt like ETFs, REITS, Tracking stocks, etc that purport to own commodities or stocks or real estate  but only own derivatvies that represent this ownership through leveraged derivate instruments.  And then there is the universe of strucutured products that supposedly base their performance of undrlying stocks or commodities but again are comprised of derivatives.

Then, even with Government Bonds, these are IOU's that will not default because we can print money to pay them off, but they are backed by nothing but "Good Faith."  

In fact, the entire pyramid above the tiny gold triangle at the bottom can be said to represent a global economy that no longer has any capitalist component (investment in capital through savings) - it is rather a Creditocracy - or Creditism - where economic growth is gained through credit creation that enables consumption.

But this is a highly inflationary system by nature.  And it is form of a Ponzi Scheme dependent on the unlimited growth of credit to unable the unlimited growth of discretionary spending.

The trouble comes in turbulent times - when inflation gets out of hand, and spending becomes more and more punitive and then every wants to cash in, and when they do they find out their claims are worthless because the tiny bits of collateral underlying all the derivativres have been sold again and again to vast numbers of other claimants (Rehypothecation) and you own nothing but worthless derivatives based on nothing of real underlying value.

Every government understands this. I'm  not saying anything new or inspired.

That's why all governements are furiously buying gold.  (Except the USA where we're clinging to strength of the printed dollar.)

And if you're at the very top of the US CREDITOCRACY this is still a good deal for you.  There are plenty of suckers willing to by your worthless derivative crap and make you richer and richer and richer while everyone around you goes broke.  (Yes, you, Blackstone, and Carlyle and KKR etc - Good job!)

But if you want protections against this and you don't work for one of the firms above you need to go right to the bottom of the pyramid and buy the only asset that has no counterparty risk and no rehypothication risk and no collateralization risk: GOLD.

GOLD AND THE DOLLAR AS RESERVE CURRENCIES

 

The US dollar became the world's reserve currency after WWII because of what is now called American Exceptionalism. This meant that thr US has/had the world's pre-eminent military along with the world's deepest and most sophisticated financial markets.  So the dollar was the natural choice for reserve currency status - and the dollar was convertible into Gold.  Therefore, Gold was the ultimate reserve currency.

In 1972 when US president Nixon closed the gold window - in other words declined to honor requests (in this case by France) to  exchange  dollars for Gold, the dollar became unhinged from its Gold anchor - which ushered in the Age of Financialization which quickly turned into the Age of Unlimited Debt.  The Age of Unlimited Debt also turned into the Age of Unlimited Wealth Transfer from the working classes and middle management classes that had to qualify stringently for debt to the Financial Classes that could obtain debt on vastly favorable terms.

And those who could obtain enough debt on favorable terms soon discovered they would never be forced to honor - or repay - that debt.  This created a class of Billionaire Debt Barons.

However, through this unprecedented Global Debt Orgy the US has managed to retain Reserve Currency status because our financial system is the one which has been able to originate and control  most of this debt globally through the EuroDollar (debt) market.

Now US Exceptionalism is predicated on the use of the US Dollar as reserve currency.  This is our biggest asset because we are the only nation that can simply print dollars to repay dollar denominated debt.

This game could probably go on for a very long time until massive defaults overwhelmed the system.

UNFORTUNATELY a genereation of exceedingly stupid politicians have done the one thing guaranteed to bring about the demise of the US dollar as reserve currency:

THEY/WE Have WEAPONIZED the dollar.  SANCTIONS AND TARRIFS are the two things you have to avoid if you want to keep the privilege of the reserve currency.

WHY? Because sanctions and tarrifs incentivize other countries to DEDOLLARIZE.  That means stop buying our debt.  And stop settling international deals, especially commodity deals, in dollars.  (among other things.)  And not just the sanctioned and tarrifed countries.  Every country looks at the US and thinks "We could be next.  Better dedollarize."

And through this age of American Exeptionalism every country including the US has kept a huge store of Gold in its central banks as an Reserve Currency of Last Resort.  So the first step in dedollarizing is making sure you have enough gold.

Now countries that have sufferered the weaponization of the US dollar  have banded together in what is known as the BRICS+ nations (which comprise about 3/5 of the world's first and second world economies) and are aggressively DEDOLLARIZING and buying vast amounts of GOLD in preparation for the launch of their own settlement currency and their own transfer systems.

What this means is as they move away from the dollar the US if forced to finance its own debt.  In other words Buy its own debt with its own Central Bank.

This is the ultimate cause of Massive Inflation.  It means the we have to print dollars to finance our debt.

But we print dollars by creating NEW DEBT.  That how it works. The more we have to finance our debt by printing - the more debt we have - and the more debt we need to finance and the more debt we have.  Repeat until financial collapse.

We have shot ourselves in the head and we are continuing to shoot ourselves in the head.

Meanwhile if you want to protect yourself from this institutionalized suicide you might want to do what the central banks of the world are doing.  

Convert some of your dollars into GOLD

Gold and the Debates

 

Republican squared off against Democrat last night and battled over who could run up the deficit the highest.

The Republican claimed he would spend untold billions moving 20 million people (who exactly he didn't specify) first to "Camps" and then out of the country.  Obviously this will require an entirely new agency, appropriations of land and massive constructions of Camps that can house 20 million people as they await deportation - which will cost a fortune in itself.  This was a mastersrtoke of Deficit  Spending! No number was attached but pick a number in the hundreds of billions and then mutlitiply it be ten if this program ever gets off the ground.

Combine that with a Massive Tarrif program that will cost the US consumer Trillions that will come out of discretionary spending and reduce global trade by about 50 percent if the Smoot Hawley Tarrifs are any guide and then you will get a massive reduction of tax income, to add to the promised massive redutions of corporate tax income - so, in all, and impressive master stroke of Deficit Spending!

On the Democrat side we heard about Grants for anyone starting a small business.  No number attached again, but imagine that it will be managed with the same efficiency that the Covid Relief spending was managed by Republicans and Democrats alike, and you can bet that any number they can come up with will be quickly depleted by anyone who can fill out a form properly, and then have to be renewed every quarter or so.  So, that should be quite a number to pile up on the Deficit Spending side.  And then middle class  tax breaks and child support in the form of Grants or Checks of printed money mailed out again to anyone good at filling out forms.  So they still need to work on some massive Deficit Spending proposal to match the Tarrifs, but it's a good start!

So, in all, I'd say Gold won the debate by any standard!

Go GOLD!

GOLD AND THE 8 YEAR CYCLE: SHIFTING SEASONS

 

A big deal is being made in technical circles about the 8 year cycle in gold - and rightfully so.

It really matters as to where you are in the larger, long term cycle - in order to have confidence in the only strategy that makes sense - Buy and Hold - unless you can trade with the kind of size that Goldman Sachs or JP Morgan traders can have to push the markets around in your favor.

But here's something to think about:

Cycles dominate all Forms of Nature (human psychology, which informs Market pschology, which moves Market Prices must be considered within the Form of Nature).

But all the Forms of Nature appeat to be shiftling.

Take political pscychology: The Far Right has shifted so far to the right it's where the far far left used to be 40 years ago: Socialstic Totalitarianism.

And the far left has shifted to where the Far Far right used to be 80 years ago: Social Darwinism.

And even the Seasonal Cycles have shifted dramatically.  

Here in New York City, where I live, the winters used to be brutal.  Weeks on end with 3 feet of snow piled up, and sub zero temperatures with biting winds forced everyone indoors.  Summers used to be brutal with weeks on end of relentless 97 degree heat, and 100 percent humidity.

Now, for the last decade, at least, winters are progressively mild.  Summers are progressively mild.  The magnificent Falls we used to have are now confined to a few short weeks.  And Spring barely exists.  One day the trees are bare.  A week later everything is in bloom.  And every season starts a few weeks earlier than it used to start.

It's weird.  The seasons have totally shifted.  And it rains all the time.  It's like we've become the Pacific Northwest.

How?  Why?  I have no idea.

But if the Seasonal Cycles are shifting - why not other Cycles?

What if the 8 year gold cycle is now a 71/2 year cycle - or a 7 year cycle?  If you look at a chart it certainly appears that the gold cycles - and other cycles - are shifting both in duration and in the violence of the spikes - just like the weather.

Now, if that's the case, (and obviously this is entirely observational = not mathematical or scientific in any way) - but if this is the case, we are already well into gold A upwave of year 1 - and anyone waiting for a huge wave 3 downward correction to get in to this bull market is going to be sorely disappointed.

Just a thought.  Perhaps wishful thinking because I'm comitted.  I think even if we get a draw down it's termporary and you just tough it out because higher prices are ahead.

But a practical thought too.  Because when you wait for that perfect In point - you tend to miss the entire move.  Especially if your precious cycles have shifted.

GOLD AND ELECTION DEFICIT INCREASE PROMISES

 

Just 2 months before the election and both candidates are trying to outdo each other with massive spending and tax break proposals.

Obviously both tax breaks and spending are the two means of increasing the massive deficit.   And there's a vicious competition going on to see who can increase the defecit the most.

Republican Deficit Increase proposals:

1. Massive Corporate tax cuts.

2. Unspecified tax cuts promised to billionaire donors.

3. The government pays for all In Vintro Fertilization treatments.

4. Free On Line College for everyone.

5. Ending taxes on tips and on Social Security.

6. Open eneded government payouts  for child support (what kind unspecified.)

Democrat Deficit Increase proposals

1 Massive tax break for middle class and working class families

2. Free Community College for everyone.

3. Ending taxes on tips.  

4. Government payouts for anyone starting a small business.

5. Child support tax breaks.

I'm sure there'll be alot more Deficit Expansion Proposals as we go along.

So the only thing that is sure is that the Government spigotts will be wide open no matter who wins.  And as rate are sure to remain somewhat elevated (above the zero bounds of the past) so will Interest Payment on the ever expanding Government Debt.  

And now that China is no longer buying our debt - in fact nobody is buying our debt but us and the Fed  - the value of the dollar in relation to Gold and all Hard Assets is bound to fall precipitously.

Both candidates for President guarantee it.

Gold Vs Bitcoin a Common Sense Approach.

 

There's still an argument about whether you'd be better off investing in Gold or bitcoin to weather the coming storm.

Consider this:

Central Banks all own gold.  This provides a Global Use for gold as a rerserve currency.  

No Central Bank owns bitcoin.  Thus Bitcoin has no use value.  It has only a completely arbitrary trade value.

Central Banks are buying gold aggressibely especially China and India and Russia and the rest of the Brics + nations.  That is because they will use Gold reserves as a backing for a settlement currency to compete with the US Dollar in the trade for Global Commodities.

Central Banks are not buying any bitcoin.  They have no use for it.

Moreover, consider this:

China has issued its own Digital Currency.

Consequently China made Bitcoin Illegal as it doesn't want a competing digital currency.

Eventually all Governements will have digital currencies.

Eventually all Governments will make all competing digital currencies illegal.  Why wouldn't they?

At that point what will Bitcoin be worth?  To whom?

Use your common sense.

GOLD TECHNICALS and CENTRAL BANKS

 

For all of the technical traders following either fantasy "systems" like hidden pivots and elliot waves - which have a place, as everything has a place in trading - one of the great systems employed by sophisticated technical traders is the "8 year cycle."  Three hard up years followed by five down years in a series of elliot style waves.  If you go back and check the charts this system has some correlation to reality for example if you take 2001 as a starting point, the next three years go higher - but then the next 5 retracement years also go higher.  There is a blip down just where'd you'd hope for one in year 8 - but so what?

However, some very smart people look to this to give a gerneral shape to the movement of gold.

Just so you know 2025 is an A up year.  (However 2024 has been pretty up)

The same way the Commitment of Traders 'COT' report figures heavily in technical trader's assessment of the gold sentiment as the Big Commercials tend to move the markets according to how short they are in order to lock in profits at perceived tops.

All well and good.

I think it's a good idea for every gold investor/trader to have some fluency with these ideas.

The elephant in the room, however is the Global Central Banking community.  They dwarf every other player, every other trend, every other system.  And they don't really care about historical cycles.

We are living in peculiar times.  Neil Howe calls it the Fourth Turning and this term has captured the imagination of many fund managers because it seems to sum up the period of enormous Global Unrest the seems to rhyme in a frightening way with the last Fourth Turning - the 1930's.

It is a period of uhpheaval.  A period where trends that have been simmering for decadeds come to a boil.  These trends include Decades of Financial Represssion that has resulted in mass disillusion with Democracy, with Capitalism, with Socialism, with the Honesty and Probity of all Leaders and their Institutions, and resentments that express themselves through hatred of anything identified as Other.

And on a global scale this is expressed in a rapid De-globalization pitting New Powers (of some very ancient countries) like China and India and the Russia and Iran and the BRICS against old powers (of much younger countries) like the US and Europe.  And even within Europe there is a splitting up rather than a coming together of binding institutionsn like the EU.

For whatever reason (something having to do with 5000 years of history of gold as money) - the entire CHINA/RUSSIA/ IRAN/INDIA block has decided that GOLD is an integral weapon to be amassed and horded as a means of stabililzing economies during this period of turmoil.  Also to use as a weapon against what they see as the tyrrany of the dollar as a settlement currency.

The Buying Power of these Central Banks is so overpowering that things like the Commitment of Major Commercial Traders is a tiny drop in the bucket in comparison.  The mathematical elegance of technical systems that at times do desrcribe movements leading into this period of Turmoil seem to fall  apart under the raw power of Central Banks pivoting to protect themselves from a coming storm.

My point is this: Look at the broad movements of the Central Banks and seek to emulate them as best you can.

Know about these other systems and technical trends.  But if you rely on them you'll be swept aside by this ineluctable tide of History.

HOW NEGATIVE REAL RATES AND fINANCIAL REPRESSION DESTROY CAPITALISM

 

Negative Real Rates occurs when the rate of interest on a loan is set by a Central Planning Committee rather than the market and it is set below the the real rate of inflation.

The real rate of inflation is what a basket of goods that consumers must use in their daly life like housing, education, energy, food, transportation, communication devices, clothing, etc - how much that all rises on a year over year percentage basis.  (in western first world economies the real figure is about 10 perent)

In Free Market Capitalism - which exists nowhere in the world - this interest rate would theoretically be set by private transaction according to the real rate of inflation, the credit worthiness of the borower and other risk factors.  (So even Elon Musk would borrow at say 13%)

In Socialism which every country on earth has adopted for the purposes of controlling and centralizing  the flow of money through a Central Bank - it is the Central Bank that sets rates - not the free market.

It is also the Central Bank and the Central Government Planning committee that establish the Nonimal Rate of Inflation, which is calculated in a way to keep the number well below the real rate of inflation. (through hedonics, substitution, equivalent rents and other nifty accounting tricks)  That way the Central Bank can issue Interest Rates also well below the real rate of inflation.

What happens next is that Large Corporations and Billionaires can receive "loans" from the Government at this extremely low interest rate.  Then they use the money in the risk markets,  If they gamble in enough size and they lose, the Governement will forgive their losses by bailing them out or sticking the losses on the balance sheet of the Fed.  If they win they keep all the winnings.

Good work if you can get it.

However, if you're not say Elon Musk or David Rubinstein, then you have to pay a much more realistic interest rate if you  borrrow money.  Let's say ten times what Elon Musk pays.  Or fifty times if you're a bad credit risk.  THen you use the money and if you can not make enough to make a large profit and pay back the huge interest rate then you go broke and get put in jail.

Take buying a house.  David Rubinstein gets loans near zero and  buys 1000 houses for his firm The Carlyle Group, and then sits on them for the appreciating value of the land and the fact that real inflation will inflate their prices over time) and sells them later, little by little to keep the illusion of scarcity inflating the prices.  The loan costs him near nothing so penalty for sitting on them is near nothing.  

Now, you want to buy a house.  Well, not much on the market since David Rubinstein bought all the houses,  But there is a house for sale at a really inflated price and you can get a mortgage for let's say 7 percent - let's say 7 times what David Rubinstein payed for his loan  And if you can't make your mortagage over time the bank takes your house away and you go live in the street.  And even if you work hard and struggle to make your mortgage there is little left over for anything else.  And nothing left over to put into the risk markets which also get inflated ever higher by the same finincial repression.

Since David Rubinstein puts all his profits in the risk markets which get pushed up higher and higher, so even if you have a little left over from paying off your expensive loan it's not enough to buy anything of value in the risk markets.

That is Financial Repression.  

That is the basis of all First world "capitalist" economies.

That sounds like a simplification.  It is.  Only in the senese that David Rubinstein and Elon Musk have a billion other ways to take advantage of access to cheap money that you don't have that are too complex to go into here.

This is why so many people are unhappy.  They blame Immigrants.  They blame socialists or communists.  They blame Blacks or Jews.  They blame red states or blue states.

And their unscrupulous venal, grasping, polilticians  encourage them in their hatreds.

Because they are too god damned lazy to learn about the real problem, which is Financial Repression,

So the rich get richer and richer and the poor get poorer and poorer.

Until A) Wiser heads get together and rerstructure this failed monetary system or

B) Until the poor are so angry they  elect a strong man politician who converts this socialist system into full blown Autocracy and then the strong man and a few of his freinds own everything and nobody else has anything.