Here’s a question worth pondering: If forced to choose between a return to high inflation and a stagnating economy, which would central banks choose? We all know the answer – so the real question becomes, just how close is the Fed to embracing permanently high inflation?
From Peter Reagan, at Birch Gold Group
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we’ll cover:
- Why is ING afraid of an imminent return to high inflation?
- What Russia’s latest moves mean for gold and silver prices
- The beginning of the end for Indian gold ownership…
- …and the red flags we should watch for, too
Return to high inflation imminent (and necessary): ING
ING Economics has given us a very detailed monthly update with a very curious omission. It’s even titled Central bankers left holding the baby. (That’s what the British say when here in the U.S. we’d say “left holding the bag.”)
Now, it might be more accurate to say that central bankers are left holding gold bullion, but more on that later.
What the report is trying to say is this: A crisis of some kind is looming, something on the scale of the 2007-08 Great Financial Crisis. (Imagine for a moment, if a crisis does hit, where will it put the price of gold after five straight years of gains?)
So what’s this crisis? Global economic growth has slowed well past the point of concern, especially in places like the Eurozone that are major industrial hubs. The U.S. and China are right there in terms of economic slump. Worse, though, is the accumulated global debt, which has doubled from $173 trillion in 2008.
As the paper notes:
So, the spotlight’s back on central banks to come to the rescue once again. All the major ones are at important turning points. They’re juggling the twin dilemmas of inflation versus decisive rate cuts. Is the former slain? Will the latter breathe life into the still-snarling dragon?
Indeed, we have outlined throughout the rate hiking cycle how the Federal Reserve found itself in a position where it tightened monetary policy in the middle of an economic slowdown. And it now must return to money-printing for two reasons.
There is practically no doubt that money printing is on the horizon, and probably sooner rather than later. That is the solution for economic situations like these. That is what got us out of the Great Financial Crisis (and coincidentally made gold double in price in that timespan).
You might think that central banks are now “inhibited by debt.” But are they really? If they could work with $24 trillion of debt, why not $48 trillion? Why not $480 trillion, for that matter? Yes, ultimately the currency (and the economy) would collapse – but inflating away the debt is a time-honored practice. After all, the only people who suffer in this situation are the “greedy creditors” who loaned the money in the first place. Oh, and citizens, of course.
Central bankers defend themselves the same way, every single time: “Sure, you think this is bad – you can’t even imagine how much worse it could’ve been if we hadn’t rescued you, so you’re welcome, citizen.”
In this way, the world’s central bankers present themselves as the very definition of “the lesser of two evils.” That still means they’re evil!
The ING analysis mentions oil price as a likely trigger for an economic crisis. With good reason! Rising energy prices are highly inflationary, raising the cost of manufacturing and production and shipping at every level. Analysts at UBS recently forecast gold would hit $2,850 relatively soon due to oil prices. Recall that oil hasn’t been stable for years, not since Russia invaded Ukraine in February 2022. The widening war in the Middle East, along with piracy in the Red Sea, have obviously contributed to both supply disruptions and volatile energy prices worldwide.
ING’s analysis leaves gold out completely, which is curious. We’ve seen protectionist-style gold hoarding from Eurozone nations, including repatriations of central bank gold reserves. The same nations causing the biggest economic concerns.
Are these central banks shielding themselves from an imminent threat? Preparing for a new, historic round of money-printing?
When countries like Iraq are buying so much gold that they compete with Western nations, something is going on. What’s clear is that no nation on Earth seems eager to own U.S. dollars or euros anymore. We’d be smart to consider their concerns.
Russia now adding silver, platinum to its central bank reserves (but why?)
What Russia recently revealed during its standard anti-NATO announcement about currency use is a big story on its own. But there is a lot more going on. Let’s dive in!
Long story short, Russia-led BRICS want to unseat the International Monetary Fund (IMF) and World Bank and create their own centralized monetary authority. One that enables them to bypass the existing global financial system completely, insulating themselves from dollar weaponization and economic coercion from the U.S. and NATO.
Can they pull it off? (And would it mean for gold?)
On paper, the ingredients are there. Virtually every emerging market nation is joining the BRICS alliance. This matters because emerging markets export raw materials like minerals, oil and gas – metals, too, and gold is a major component.
Russia’s Finance Ministry and BRICS officials feel as if the IMF and the World Bank aren’t treating up-and-coming nations fairly. I’m not here to argue the merits of their complaints – I’m sure we’ve all felt ill-used by bankers at some point or another. The difference here is, BRICS are able to say, “Your banks aren’t willing to work with us, so we’re going to make our own.”
A big surprise from the announcement is just how far de-dollarization has already come. Anton Siluanov, Russia’s finance minister, said:
Indeed, we are in practice using national currencies and the Russian ruble within BRICS – 65% of all the settlements is made in rubles, in national currencies. The share of the dollar and the euro is declining, and it is less than 30% now.
We know BRICS are seeking to replace the U.S. dollar. BRICS countries want to retain their own worthless paper currencies. Through a simple but carefully-crafted system of paper currencies that can be swapped for oil or gold, they’re ensuring that their central banks end up with gold while their citizens are stuck with currency.
The proof is in the purchases: All BRICS nations have hoarded gold over the last couple years. They’ve taken little to no action to reinstitute gold as currency. It’s possible they’re still building themselves up to it? It’s equally possible they’ll only use gold-backed money at the highest levels, for country-to-country transactions.
Maybe not just gold… A recent government report from Russia suggested that they will buying silver as well as platinum-group metals. Overall, they plan to spend $535.5 million on precious metals over the next three years.
That is an absolutely massive figure, and it’s likely to have a noticeable impact on prices. Why silver? Well, Russia is tied for #6 silver mining nation (and China is #2). More importantly, though, silver is becoming a metal of strategic importance. Particularly in the alternative energy sector (solar panels and electric vehicles mostly).
Why platinum-group metals? Russia is the #2 producer of palladium, and more than a quarter of the world’s platinum. Central bank buying would help keep the domestic mining sector strong.
The fiat currency system clearly suits BRICS members, at least for now. For obvious reasons! It leaves them with valuable assets, and their citizens with nothing but paper. Why would BRICS reinstitute a domestic gold standard when they can have all the gold they want anyway? And leave their populations dependent and impoverished.
I’m cynically reminded of Roosevelt’s infamous Executive Order 6102. “Real money” (gold) was simply too important for civilians to own and use. Gold was for important people like central bankers and CEOs like J.P. Morgan – the power players. Not for the likes of you and me.
The BRICS nations hold press conferences and posture as if they’re trying to save the world economy. Yet their citizens are stuck with worthless paper money. Meanwhile, our federal government is pretending they can somehow heap up enough debt to return us to an age of American prosperity.
Both are equally unbelievable. The dollar, just like the ruble and the rupee and the rand and the Brazilian real, is headed down, down, down.
And just like citizens of BRICS nations, those Americans who haven’t explored the idea of gold ownership would be smart to do so. As Thomas Jefferson warned us, “Paper is poverty, it is only the ghost of money, and not money itself.”
We respect the efforts of the Sound Money Defense League, and if their goal is eventually fulfilled, great! The gold you own will be no less valuable. In a business-as-usual scenario, you’ll be well-insulated from the continuous destruction of your wealth.
High premiums, gold loans and digital gold: An assault on gold ownership
Just last week, I said that India’s covert confiscation of gold is quite elegant compared to Roosevelt’s heavy-handed tactics. Here are five more stories with even more details…
We can start with steep premiums that are dissuading gold buyers left and right. As the article notes, today’s buyers are opting for lighter pieces because that’s what they can afford. It speaks to how high gold’s price is these days (even though the consensus is, it will go even higher).
Gold jewelry is expensive to begin with, so Indian households will end up with less and less gold. This is important – just as you or I might pass on gold American eagles to our heirs, Indian families hand down their gold jewelry. Indian buyers are shopping on the less-pure end of the spectrum, moving from 22-karat gold (0.917 pure), increasingly, to 14-karat (0.583 pure).
That’s just the beginning. What do you do when premiums on physical gold shoot up to unacceptable levels? You opt for digital gold, of course, which has no premium – and no relevance to reality.
Obviously, digital gold is getting more and more popular in India. That means both a reduction of private gold holdings and a move to wean the lined younger generation off the idea that physical gold is better. The children of India’s “zoomers” might wonder why previous generations ever bothered owning inconveniently-heavy physical gold when a digital wallet is so much lighter.
And it seems that the word “growth” doesn’t quite cut it anymore when referring to the weekly updates on India’s gold loan sector, which is exploding. I won’t repeat myself by describing the consequences for gold ownership (2nd story).
Those unfamiliar with India’s Gold Monetization Scheme might also want to know that it’s a 1-15 year affair that encourages citizens to swap gold for cash. Yes – the central bank of India is basically waving “WE BUY GOLD” signs on the sidewalk.
It’s not possible to ignore all of this. Every item on this list directly results in Indian households owning less and less physical gold with every generation.
How much one wants to entertain the idea that Indian household gold is having a one-way trip to the central bank’s vault isn’t too important for now, although it might end up being exceedingly so.
It’s a potent reminder that governments don’t encourage gold ownership – because it gives significant economic power and freedom to their citizens.