According to economists at the American Institute for Economic Research, de-dollarization has begun. While that’s bad news for the dollar, it makes a loud case for gold. Here’s why…
Gold has now moved higher for two quarters in a row and has convincingly moved past $2,000 per ounce. It is a move confirmed by a powerful surge in silver. And it coincides with the dollar finishing lower over the same period.
Gold’s Rise Higher
This period of rising gold prices coincides with the fallout from the scandalous multi-billion-dollar bankruptcy of the FTX cryptocurrency platform and the shock of Big Tech cutting jobs not by the thousands but by the tens of thousands.
In the same period of gold’s rise, the Fed began test driving its own new digital currency (CBDC) with a 12-week digital dollar pilot program in conjunction with select major banks, including Citi, HSBC, Wells Fargo, and even Mastercard. Such CBDCs have massive authoritarian implications. They are not popular with privacy advocates.
In Fiscal Year 2021, the average interest rate on U.S. government debt was only 1.6%. Now it is already over 2% and will move much higher as older bonds with lower rates mature and have to be replaced with higher interest rate borrowing. The Federal Reserve’s higher interest rate policy has costs beyond those of financing government debt.
Gold has continued climbing as crisis dynamics appear to be quickening. Due to rising rates, the last quarter exposed a rash of bank solvency issues involving Silicon Valley Bank, Signature Bank, Silvergate, First Republic Bank, and Credit Suisse. Even after the extraordinary measures they provoked, economist Nouriel Roubini notes that “most U.S. banks are technically near insolvency, and hundreds are already fully insolvent.” Jamie Dimon, the CEO of JPMorgan Chase points out the obvious, that most of these bank risks “were hiding in plain sight.”
China’s Role in De-dollarization
Meanwhile, an OPEC group including Saudi Arabia, the UAE, Iraq, and Kuwait has agreed to slash oil production. China’s geopolitical influence has grown as it has brokered a peace between the long-divided Sunni-led Saudi Arabia and Iran’s Shiite government. Presidents Xi and Putin have been likewise driven into one another’s arms by mutual security interests.
Xi describes these developments as “changes that haven’t been seen in 100 years.” He is clearly speaking of the ending of U.S. global hegemony, the ability of Washington to enforce its sanctions regimes, and foreign policy objectives. These are changes that have correspondingly powerful monetary implications as well. The U.S. dollar’s share of global central bank reserves is in long-term decline.
De-dollarization and the American Standard of Living
This key role in global finance that has persisted since the end of World War II was dubbed the dollar’s “exorbitant privilege” as far back as the 1960s. After all, the U.S. could create dollars at little or no cost—dollars that foreigners could acquire for their central bank reserves only by producing real goods and services. The dollar’s privilege has privileged the American standard of living for generations now.
De-dollarization, now seen in the end of the petrodollar and in central banks beefing up their gold reserves, is nothing less than the ending of the dollar’s exorbitant privilege. This change is likely to unfold the way that Hemingway described the way one goes bankrupt: gradually at first, then suddenly.
It is a powerful argument for protecting wealth with gold.
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The opinions, beliefs, and viewpoints expressed in this article do not necessarily reflect the opinions, beliefs, and viewpoints of Red Rock Secured LLC or the official policies of Red Rock Secured LLC. Red Rock Secured LLC is not a financial advisor, is not licensed to provide investment or tax advice, and neither provides investment nor financial advice. Red Rock is a product specialist that can help evaluate your precious metals purchase options.