States Consider Holding Gold as Geopolitical and Inflation Fears Rise

The comments below are an edited and abridged synopsis of an article by Mike Gleason

Gold gained $30 last week to close at $1,900, and silver went to $24. Gold’s uptrend is confirmed by the mining stocks. Despite the merits of cryptos as an alternative asset class, no digital currency will ever substitute for hard assets like gold and silver within a diversified portfolio.

States Consider Holding Gold as Geopolitical and - BullionBuzz - Nick's Top Six
State holding gold in vault concept.

Metals jumped on inflation data and geopolitical concerns. It’s possible that fear-mongering around Russia will turn out to be overblown. The Russian invasion of Ukraine hasn’t yet happened.

Obviously, Vladimir Putin is no particular ally of the American sound money movement. But it’s worth paying attention to the Russian central bank’s steady accumulation of gold and its reasons for doing so.

Russia has been switching out US dollars for gold. According to reports, the Bank of Russia now holds 23% of its foreign reserves in gold and just 22% in dollars.

Russia is turning to gold partly because it faces severe economic sanctions imposed by the US and its allies. Some are suggesting the Fed should freeze all US dollar assets held by the Russian central bank in accounts at the Fed.

This calls into question the trust and safety of holding US dollars. If US officials can cancel the accounts of foreign central banks, then a lot of countries will think twice about continuing to hold dollars as reserves.

In trying to punish Russia, US officials risk accelerating de-dollarization around the world. And that may play right into Putin’s hands.

But it isn’t Russian propaganda campaigns that are behind the dollar’s decline. It is losing value as a result of the aggressive debt growth and currency creation policies undertaken by Washington, D.C.

CPI readings came in at their highest levels in 40 years. Producer price increases have surged to record levels, and import and export prices came in much higher than expected.

Geopolitical flare-ups rarely trigger major trends in markets. They drive volatility, but in the long run investors would be wise to focus on more persistent drivers of major trends; currency debasement is certainly one of them.

Meanwhile, Mississippi’s bill to void the sales tax on gold and silver passed only one vote shy of unanimously, and Idaho passed a bill permitting the state treasurer to hold physical gold and silver in order to protect taxpayer funds from inflation.

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