Good as Gold

Gold fever has not reached individuals. Instead, it appears to be central banks that are stocking up. In the whirlwind ahead, gold may be the only thing they can hold onto.

Source: Getty Images

Friday, March 21st, 2025

Bill Bonner, writing from Baltimore, Maryland

The Golden Rule: He who has the gold makes the rules.

But gold doesn’t stay in one pocket forever. It moves. Then, someone else makes the rules.

In the news, Reuters:

Gold climbed to an all-time high on Thursday as the U.S. Federal Reserve signaled two possible interest rate cuts this year, adding to the precious metal's appeal amid ongoing geopolitical and economic tensions. Spot gold added 0.1% to $3,050.94 an ounce as of 0520 GMT, after touching an all-time high of $3,057.21 earlier in the session.

Typically, a rising power accumulates gold. In the old days it did so by brute force. It conquered…and sent the booty back to its homeland. Or, it received tribute – in gold – from vassals. Or it extorted payment, in exchange for not attacking.

In the more modern version, political power comes from economic power. Dynamic economies sell more and more goods and services. For most of the 20^th century, the US was the world’s leading manufacturer…its leading exporter…and its leading financial powerhouse.

These advantages were especially important during World Wars I and II. The allies relied on American industries to provide crucial goods. US producers took the orders, shipped the goods and (eventually) received payment in gold.

Up until 1971, trade imbalances were settled in gold. After 1971, all the seller would get for his excess dollars was more excess dollars, widely regarded ‘as good as gold.’

China is now the world’s leading manufacturer and exporter. For its trouble it ends up with a lot of dollars. Of course, it could trade those dollars for gold. But if it were to do so today, it would have to think twice. The gold price is over $3,000/oz.

It faces the same dilemma we all do: Buying gold is no longer a ‘no-brainer.’

And yet, gold is apparently still going up. MarketWatch:

Gold’s climb to an all-time high above $3,000 an ounce this week certainly turned heads, but its value is still around 16% below its inflation-adjusted record from 1980.

The price is up 39% over the last 12 months. And our Gold/Dow tells us it has a lot further to go. But there are no guarantees.

So far, gold fever has not reached individuals. Instead, it appears to be central banks that are stocking up. In the whirlwind ahead, gold may be the only thing they can hold onto.

The giant fraud of post-1971 dollars is that people can be made richer simply by printing up more of them. And it almost appears to be true. Add more dollars…things go up. Add them to Wall Street, asset prices go up – people feel richer. Add them to Main Street and consumer spending goes up…along with GDP and corporate profits.

It is only when the inflation reaches retail prices that the jig is up. And then, in the natural order of things, the pin finds its bubble and the whole edifice of inflated values comes crashing down (gold goes up…real values go down).

But in this case, the US introduced a sharp object of its own. It used its paper money system to force other nations into line. Glenn Diesen’s Substack:

BRICS Stockpiling Gold as the G7 Weaponised Finance

The West’s decision to freeze and legalise the theft of Russian sovereign funds predictably diminished trust in the Western financial system, resulting in a huge demand for gold and other precious metals as a safe haven. Gold is not a yield-bearing asset, yet it preserves its value during turbulent times. There are some more twists to the story: There is a rise in demand for physical gold and a push to store it in their home countries due to the lack of trust it can be stored safely in the West.

What was done to Russia could happen to anyone. An adversary like China is obviously next in line as the economic coercion to prevent its continued development intensifies. The EU demands China must pay a “higher cost” for supporting Russia, linking Russia and China seemingly for the purpose of convincing Trump to continue the war in Ukraine. Even friendly countries such as India could be targeted anytime with secondary sanctions for failing to bow to the demands of Washington.

China is having hundreds of tonnes of gold shipped from the West to China. Switzerland alone sent 524 tonnes of gold to China in 2022.India brought home 100 tonnes of gold from the UK in 2024, the first large shipment since 1991. The transfer and storage of these metals are neither convenient nor cheap, yet the collapse in trust demands drastic actions. Bloomberg reports on Singapore constructing a six-story warehouse “designed to hold 10,000 tons of silver, more than a third of global annual supply, and 500 tons of gold”.

How far this will go, we don’t know. Who will make the rules ten years from now? We don’t know that either.

So, we’ll hold onto our gold a while longer, and we’ll find out.

Regards,

Bill Bonner