The more debt is being accumulated on the balance sheets of European central banks, the more likely they will revalue gold to write off this debt. When I asked the German central bank if they consider this option they replied: “at this stage, we prefer not to speculate about any potential decisions … that might or might not be taken in the future.”
This is a very poignant article, and is closer to an argument of, ‘who will blink first? ’, and use their gold to good use. I suspect gold will be used, not for debt relief, but for a country’s survival.
In 1971 gold was dropped, but that didn’t mean the dollar was in free-floating mode. It was pegged to oil, indeed only the $ could be used to access oil. Those countries that attempted to use another means of exchange for oil, met with a sorry fate at the hands of the US Machine.
However, the abundant and cheap oil of the 50’s through 70’s, has gone, and the oil produced today is hampered not so much by scarcity, but by its energy return, once you’ve factored in how much energy you had to expend to get the oil out of the ground and to the refinery.
We live in a civilization powered by oil, and more importantly sustained and maintained by oil. But civilization, much like those spinning plates on sticks is starting to wobble as oil becomes more expensive ( in $ terms), to acquire.
A point will come when countries who are desperate for energy will be told that their paper is no good, but they will take gold for their precious oil.
Thus the gold ‘dam’ will break when the only option of economic survival, is to swap an unprintable metal, for an unprintable source of oil.
What about the geo-political aspects of such a revaluation. Wouldn't Russia and China benefit greatly? Russia, I believe has little debt and good gold stocks. China apparently has large gold stocks. Also, who/how is national gold verified today or in the future. Back in the gold standard days, my understanding was that auditors from various countries literally watched the movement of gold assets for their countries. To revalue gold, it seems as though independent auditors would have to verify each country's stocks. Just some thoughts on what might make this a difficult proposition for some countries to agree to.
If your on a gold standard the market can call your bluf by “converting all paper into metal.” Historically, some gold standards were backed for 100%, some only for 5%. This is were the price setting (is backing percentage) comes in, and subsequently if the market believes that backing.
Every country should measure it in their own currency, but all those “new gold standards” create new exchange rates. So it will be a game between all countries.
You say, "Social instability leads to political instability, which leads to monetary instability, which leads to more social instability." I think it is more accurate to say that monetary instability leads to social instability, which leads to political instability. That political instability is what ultimately will force the monetary system reset via gold revaluation.
Jan, I always enjoy reading your very insightful research and appreciate your thoughts. Revaluation of gold begs the question: to what price, and based on what factors? I've heard Jim Rickards argue that valuing gold at 15,000 Fiat Federal Reserve notes would be an appropriate level for a partial return to the gold standard, while others such as Jim Sinclair and Bill Hoelter suggest a level in excess of 80,000 Fiat Fed Notes would be needed to support the 30 Trillion Fiat Fed Note Federal Debt. So, the level varies widely among commentators much better informed than me.
I appreciate that you're writing in a European context, and Rickards, Sinclair, et al are commenting in terms of the US Fed. But the question is similar for each: what is an appropriate price for gold, and measured in what currency: Euros, Fiat Fed Notes, Yuan, or what?
Hard to say; it depends on three things: one, how much debt do they want to write off; two, what gold price they want for backing their currency with gold at what percentage (60%, 80%, etc.); three, setting their exchange rate to other countries going for debt relief and a new gold standard.
Why would any govt/cb do this? Isn't the interest paid on debt owned by the CB, returned to the govt less expenses, similar to how the Treas/Fed operates in the US. So the debt owed by the Govt to the CB is effectively 'no cost' money ? If it is, what would be the benefit of writing it off?
To lower the debt burden so they don’t gave to pay 15% on the bonds held by the private sector. Or, of course, they can also choose what Japan does, risking economic zombification and decay.
This is a very poignant article, and is closer to an argument of, ‘who will blink first? ’, and use their gold to good use. I suspect gold will be used, not for debt relief, but for a country’s survival.
In 1971 gold was dropped, but that didn’t mean the dollar was in free-floating mode. It was pegged to oil, indeed only the $ could be used to access oil. Those countries that attempted to use another means of exchange for oil, met with a sorry fate at the hands of the US Machine.
However, the abundant and cheap oil of the 50’s through 70’s, has gone, and the oil produced today is hampered not so much by scarcity, but by its energy return, once you’ve factored in how much energy you had to expend to get the oil out of the ground and to the refinery.
We live in a civilization powered by oil, and more importantly sustained and maintained by oil. But civilization, much like those spinning plates on sticks is starting to wobble as oil becomes more expensive ( in $ terms), to acquire.
A point will come when countries who are desperate for energy will be told that their paper is no good, but they will take gold for their precious oil.
Thus the gold ‘dam’ will break when the only option of economic survival, is to swap an unprintable metal, for an unprintable source of oil.
David B
What about the geo-political aspects of such a revaluation. Wouldn't Russia and China benefit greatly? Russia, I believe has little debt and good gold stocks. China apparently has large gold stocks. Also, who/how is national gold verified today or in the future. Back in the gold standard days, my understanding was that auditors from various countries literally watched the movement of gold assets for their countries. To revalue gold, it seems as though independent auditors would have to verify each country's stocks. Just some thoughts on what might make this a difficult proposition for some countries to agree to.
If your on a gold standard the market can call your bluf by “converting all paper into metal.” Historically, some gold standards were backed for 100%, some only for 5%. This is were the price setting (is backing percentage) comes in, and subsequently if the market believes that backing.
Really interesting paper... finally something original thought... but, how to raise the gold price up to the Central Banks required level?
The question is, what price is the "Central Banks required level", and measured in what?
Every country should measure it in their own currency, but all those “new gold standards” create new exchange rates. So it will be a game between all countries.
You say, "Social instability leads to political instability, which leads to monetary instability, which leads to more social instability." I think it is more accurate to say that monetary instability leads to social instability, which leads to political instability. That political instability is what ultimately will force the monetary system reset via gold revaluation.
maybe an update on this and a price forecast?
what happens if Russia and China 'flip' Germany and EU into Eurasian orbit and roll out gold standards from France to Beijing?
I’m waiting for TPI to be activated by the ECB and then write an update.
Liabilities on the left, Assets on the right side of the balance sheet.
I think the central banks are waiting to launch their CBDCs after which, will the price of gold matter ?
Will CBDCs erase the debt? No.
Jan, I always enjoy reading your very insightful research and appreciate your thoughts. Revaluation of gold begs the question: to what price, and based on what factors? I've heard Jim Rickards argue that valuing gold at 15,000 Fiat Federal Reserve notes would be an appropriate level for a partial return to the gold standard, while others such as Jim Sinclair and Bill Hoelter suggest a level in excess of 80,000 Fiat Fed Notes would be needed to support the 30 Trillion Fiat Fed Note Federal Debt. So, the level varies widely among commentators much better informed than me.
I appreciate that you're writing in a European context, and Rickards, Sinclair, et al are commenting in terms of the US Fed. But the question is similar for each: what is an appropriate price for gold, and measured in what currency: Euros, Fiat Fed Notes, Yuan, or what?
Hard to say; it depends on three things: one, how much debt do they want to write off; two, what gold price they want for backing their currency with gold at what percentage (60%, 80%, etc.); three, setting their exchange rate to other countries going for debt relief and a new gold standard.
Why would any govt/cb do this? Isn't the interest paid on debt owned by the CB, returned to the govt less expenses, similar to how the Treas/Fed operates in the US. So the debt owed by the Govt to the CB is effectively 'no cost' money ? If it is, what would be the benefit of writing it off?
To lower the debt burden so they don’t gave to pay 15% on the bonds held by the private sector. Or, of course, they can also choose what Japan does, risking economic zombification and decay.
Very well written and argued, thank you!