GOLD, THE DOLLAR, STABLE COIN and QUANTUM COMPUTING

 

There is a debate in progress between those who are convinced that China is leading a dedollarization campaign that is bound to succeed, and those that believe that stable coins are going to make the dedollarization process impossible, or at least very difficult.

It should be noted that proponents of both theories think the primary winner of either scenario will be gold.  

Alaisdair McCLeod makes a convincing case that China has the ability and a coalition to bring about a gold linked (though not, at first, directly convertible) settlement currency that will make the dollar far less attractive in the the global commodity trade.  He thinks that this will bring about a great drop in the value of the dollar and a commenserate rise in the value of gold.

Brent Johnson of the dollar milkshake theory thinks that though there is a global desire to dedollarize, it will be nearly impossible to do so because the proliferation of dollar denominated stable coins will sweep the world and make the value of the dollar rise.  Ironically he feels that this rise in dollar value will cause a credit crisis that will make the value of gold soar.

Though both theories favor gold, the time frame suggested by both theories for the rise in the value of gold are very different.

I would say that those who are pounding the table for stable coin are missing two extremely important problems.

First, as delineated compellingly by Jim Rickards, the fact that there is no oversight for stable coin will necessarily lead to abuse.  And it only takes one bad actor to destroy the faith in the entire system.  Each stable coin is theoretically backed by a dollar of treasuries.  But without enforcement, oversight, or even transparant  accounting, anyone can cheat, and nobody would know until a problem arose in redemption.  At that point, a problem could lead to mass redemptions and a collapse of the entire system.

Second, the block chain technology upon which all crypto is dependent will be hackable by Quantum computing by as early as 2029.  It is already hackable right now, but there is not yet a computer with sufficient power to generate the hack.  That, right now, is three years away.  But it could come sooner.

That it will come is not in question.  Why this doesn't make the crypto community more nervous is a complete mystery.  Maybe they think if they ignore this problem it will just evaporate. But when it happens it will make gold, the barberous relic, all the more attractive. 

And a gold linked Chinese currency will then also be all the more attractive.

Modern collector gold: A new market.

 

New markets are difficult to gauge because they have no real track record.  But one interesting market that is obviously tied to the gold bullion price is the low mintage collector gold market.  I'm talking about the global central mints -  I'd stay away from anything that is private mint - prinicipally because there's no guarantee that private mint gold is actually gold, or that mintages are accurate.

But the British Royal mint (and its client mints in the British dependencies), the Royal Dutch mint, the French Monnai de Paris especially are all issuing gold coins with mintages as low as 20 or 30 pieces up to several hundred pieces.  Because all these mints are producing a myriad of issues every year, the premiums for these coins can often  be very low over bullion when bought at auction at Heritage and Stacks.  And because the US private investor is largely out of the market, and the Asian investors largely buy Chinese Mint issues, and British and European investors are largely strapped for cash right now, this market is undersubscribed vis a vis the bullion market where most high value institutional and ultra rich investors buy in quantity.

The neglect of a market makes it immediately interesting.  And most interesting is that over the last 30 years of these issues, I've seen several issues attract a significant collector bid.  Take the French mint Sower five franc gold issues from the mid 1970's issued in quantities from 35 to 120 pieces (pitured above).  These low mintage coins could have been bought for bullion even fifteen years ago. Now they trade at 3-4 times bullion.  That is a significant premium.  The same can be said for some of the popular British mint coins based on reproduced masterpieces from earlier centuries: the three graces, the victoria gothic portrait, the pistrucci waterloo victory, all are relatively recent and already trade to 2-3 times bullion.  

Now, will this continue into the future?  When bullion is $10,000 dollars an ounce will these coins trade for 20-30,000 dollars?

That's very hard to say.  Probably the premiums will tighten.  By that logic bullion is a better bet than those issues that have already taken off.

But for those issues that still trade very close to bullion, the downside is very hard to see.  When only 100 coins have been minted, in a global market with billions of potential buyers, some of these issues will become valuable.

Right now, the entire gold bull has been driven by central bank buying and the buying of the ultra rich.  Obviously they do not care much about collector coins.  It's too time intensive for those figuring how to invest billions and hundreds of billions.  But enventually, as the cost of living continues to soar, and other more traditional investments cease to provide returns, it is natural that at some point you'll get a avid retail demand for gold.  Then those coins whose designs are paticularly impressive in very low mintages could turn out to be highly sought after.