By Sean Kelly

Just as the accumulation of stresses in the Earth’s crust can provide signals and precursors of major earthquakes, there are signals in global financial affairs that we believe warn of substantial disruptions that spell a breakout in gold prices.    

Global debt and frenzied money printing are the major financial stresses that we have written about often. 

With this commentary, we identify a few of the additional precursors that suggest seismic monetary changes are looming before us.

Central banks account for 12% of global gold demand. This share is rising. As we have stressed, it is one of the most important monetary megatrends; a retreat from dollar reserves and into gold is a sign of things to come.  

Central bankers do not often acknowledge it, but many know exactly how their liquidity operations and quantitative easing depreciate their own currencies. And they know how it depreciates the U.S. dollar as well.  

Most of them don’t mind fleecing their own people with gushers of fiat money, but they don’t want to be fleeced by us. Hence, de-dollarization.

It is not just China, Russia, Germany, and India that are de-dollarizing. Additional players at the party are many and now included Serbia, Thailand, and Brazil. Thailand’s central bank grew its gold reserves by 60% in the first quarter with purchases of 90.2 tons. Brazil, the world’s ninth-largest economy, boosted its holdings by 52% in June with the purchase of 41.8 additional tons of gold.

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De-dollarization and the Decaying Role of the Dollar

China Goes for the Gold! Why Does it Matter?

China’s crackdown this week on its own companies’ presence in American capital markets is a surprise development to many and a mystery to many more. It reminds us, though, of Tip O’Neill’s famous line that “all politics is local.”  

Chinses Communist Party officials are looking first to domestic populism, even if it means depriving Chinese companies of billions of dollars of foreign capital. China expert and economist Stephen Roach at Yale believes that “a line has now been crossed” in U.S.-China relations. 

“We are,” says Roach, “on the brink of a cold war.” 

A senior China foreign minister said this week that relations between the two countries are at “a dead end.” Anything can happen, with consequences spreading from Chinese stocks to share prices around the world. A wider trade war spells more supply chain dislocations, already in difficulty due to COVID measures.  

No less important is China’s status as a leading U.S. creditor. For years we have been assured that China will never unwind its trillion-dollar U.S. Treasury bond portfolio. But we now know that China’s authoritarian leaders will advance their perceived domestic political interests even at an enormous financial cost.  

Do not discount the importance of these recent developments. They have the potential to drive gold to new all-time highs suddenly. Although people have been involved in trying to predict earthquakes since the ancient Greeks and Romans noted anomalous behavior in animals and other natural phenomena, the modern science of foretelling major seismic events is in its infancy. Still, the place where it all starts is with major stress in the Earth’s crust.

In much the same way, growing stress in financial conditions must give way to changes that, like earthquakes, can occur precipitously.  

Just as people flee buildings in earthquakes, seeking safety from collapsing structures, we recommend you take steps now to protect yourself, your family, your wealth, and your retirement with gold and silver. They are shelters from approaching seismic-scale economic quakes.

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