Solid Gold in a Broken World
The comments below are an edited and abridged synopsis of an article by Egon von Greyerz
The Fed is cornered. Fed Chair Jay Powell knows he needs higher rates to fight inflation but also knows that raising rates into a historical debt bubble means one credit event (or crunch) after the next, from tanking US Treasuries in 2020 to tanking banks in 2023.
Up for discussion: Human, all too human; not Volcker, all too Volcker; clear, all-too-clear bar tab; kill the currency or save the (broken) system; China licking its chops and expanding its swaps; it’s good to be king (but not a US dollar); playing the long game in a world of the short sighted; in gold they trust; how the US dollar lost trust; and peak cheap gold.
Notwithstanding the changing patterns in the global FX and geopolitical stage, consider the seemingly unlimited supply of US Treasuries with their limited duration and then compare with a bar of gold that, unlike Uncle Sam’s IOUs, has an infinite duration and limited supply.
In short: Supply and demand still matter. Gold discoveries are dwindling and demand is rising, and will continue to do so. In the 1990s there were over 180 major gold discoveries; in the 2000s there were 120; in the 2010s there were 40; and there have been none since 2019.
Also, the US, holder of the world reserve currency, has been hiking rates into the greatest debt bubble in national history, thereby increasing US solvency risk (and indicating dollar debasement down the road).
Gold is separating from real rates and acting more and more on its own, as the fear trade gets easier and easier to see, and gold gets easier and easier to, well… TRUST.
Demand for gold is increasing as its supply is falling. If you took high school economics, you know what that does to the gold price and the dollar’s purchasing power.