Top Three Videos – August 25, 2024

Central Banks and Gold Accumulation

• Gold tends to do well in inflationary times when the Central Bank hasn’t really acted yet or they’ve tried to act and they’ve not really been able to contain it.
• The bulk of the buying in the recent gold rally is coming from foreign central banks as well as from foreign private sector, notably in Asia.
• Central banks bought more than 1,000 tons of gold in 2022 and 2023, a significant amount compared to the estimated 2,500 to 3,000 tons of gold mined annually.
• When the dollar is weakening, central banks tend to accumulate assets, including treasuries and gold, by increasing their reserves.
• Accumulating reserves can take away from wage earners and savers, as it prevents the currency from strengthening, and instead flows capital to the top, giving policymakers more control over it.
• China is currently the biggest Central Bank buyer of gold, while Western Europe and the US are noticeably absent from the list of major gold buyers.
• Countries that find themselves “out of the club” will face a rougher and different future.
• Estimates suggest that massive amounts of gold, around 20,000 tons, have moved from west to east, particularly to China, sparking speculation about the true extent of China’s gold holdings.

   

Monetary Policy and Currency Dynamics

• The monetary base might only be 40% backed by gold, and the M2 money supply might be 5 to 10 times larger than the monetary base, leading to an expansion of the money supply.
• If they were to try a gold standard, it’d be a big reset, but then over decades you probably would break all those pegs again because there’s no firm tether between the amount of gold and overall loan creation.
• The Fed can devalue the dollar by creating reserves to buy gold, which would increase the value of gold, lead to more inflation, and partially relieve debtors.
• The Congressional Budget Office expects $20 trillion in new treasuries to be issued over the next 10 years, while only $2.5 trillion in new gold will be produced at current prices and production rates.
• The market doesn’t believe the government’s rate hikes, so it’s going to own gold anyway because the math is no longer checking out.

   

Gold’s Performance in Economic Environments

• Gold and silver tend to do very well in inflationary decades, such as the 1910s, 1940s, 1970s, and 2000s, which were also big energy bull markets.
• Gold might not rise in a year when inflation is high but the market expects the central bank to quash it with hawkish policies, but it tends to do well when money supply is increasing and inflation is building but the central bank hasn’t acted yet.
• When real rates are positive, people generally flock towards treasuries rather than gold, but when inflation is at or above the treasury rate, capital flows towards scarce assets like gold.
• Gold held steady and even broke out to new all-time highs in dollar terms despite high real rates, which is unusual.

   

Gold as a Store of Value and Safeguard

• If you wake up and your account’s hacked or the government freezes all brokerage accounts, holding assets like physical gold or Bitcoin in your possession can be a safeguard.
• Gold was the one thing stronger than the US system, and the US government had to worry about capital flowing to it instead of their bonds.