Quibble with Bloomberg - Gold isn't a counterparty free asset - it requires physical storage. Nations and funds may be buying and selling gold on the market but the asset may not actually move, it's just a paper trade on gold sitting in a US vault.
This is exactly why there have been headlines about Germany 'repatriating' $180B worth of gold that is physically in the US. Seizing or threatening to seize that gold for negotiation leverage is exactly Trump's MO, which foreign parties will increasingly feel is unacceptable exposure.
In a heist, gold can be transported in quantity, or transported securely or transported quickly, but not all 3.
Seal Team 6 with C-5s aren't good enough. Unless they steal the TARDIS from UNIT first. That's the plot of the next summer's blockbuster: Doctor Goldfinger.
This made me wonder if the real successor to today’s system isn’t gold or Bitcoin, but a more explicit, institution-backed version of a digital dollar (something this administration seems to be circling, albeit sloppily). Not crypto as a flight-to-safety asset, but blockchain as a settlement infrastructure.
However, that only works if it’s set up and backed by real institutions, companies, etc. In the end, it still reinforces your point: trust, not technology, is doing most of the work, and that's what's happening with gold anyway.
Use a log normal chart - gold nearly doubled before the inflation really kicked in.
Part of the rise (and part of central bank demand) was due to the sanctions imposed in Russia. Seizing dollars held at the Fed and euros held in Euroclear and banning access to SWIFT tends to get rogue countries focused on gold as opposed to currency.
Nobody has any really good explanations for the last 50 percent move in Gold. Short-covering (some people sold into the rally betting we’d see a correction after Diwali- whoops) is part of it, your point about Asian demand, and also momentum traders.
Gold can’t really be the replacement for the dollar, though- there isn’t enough of it around, even if it appreciates another 10x.
The Euro also can’t replace the dollar. It has neither a bond market nor a government nor a real central bank, and it has a trade surplus- meaning people owe euros rather than accumulating them. Moreover the ECB wants the currency to be weak to support manufacturing.
RMB can’t replace the dollar. China has capital controls, no rule of law and a trade surplus. You also pointed out that China prefers a weak currency.
As for the Dollar- it is basically back to pre-Covid levels against the Euro, which makes sense. There was a flight to quality during the COVID scare as the US had the financial firepower to stimulate. Good for the dollar. Now the rest of the world is recovering and things are normalizing. The current levels for the Dollar Index are unexceptional.
Gold is interesting. The Swiss Franc is interesting and the Yen is interesting. I’m not sure it is really a Dollar story though. Not yet, at least.
Quibble with Bloomberg - Gold isn't a counterparty free asset - it requires physical storage. Nations and funds may be buying and selling gold on the market but the asset may not actually move, it's just a paper trade on gold sitting in a US vault.
This is exactly why there have been headlines about Germany 'repatriating' $180B worth of gold that is physically in the US. Seizing or threatening to seize that gold for negotiation leverage is exactly Trump's MO, which foreign parties will increasingly feel is unacceptable exposure.
True, though if seal team 6 has some C-5a and wants your gold, it isn’t safe anywhere.
In a heist, gold can be transported in quantity, or transported securely or transported quickly, but not all 3.
Seal Team 6 with C-5s aren't good enough. Unless they steal the TARDIS from UNIT first. That's the plot of the next summer's blockbuster: Doctor Goldfinger.
This made me wonder if the real successor to today’s system isn’t gold or Bitcoin, but a more explicit, institution-backed version of a digital dollar (something this administration seems to be circling, albeit sloppily). Not crypto as a flight-to-safety asset, but blockchain as a settlement infrastructure.
However, that only works if it’s set up and backed by real institutions, companies, etc. In the end, it still reinforces your point: trust, not technology, is doing most of the work, and that's what's happening with gold anyway.
Good overview, thanks.
Couple of points:
Use a log normal chart - gold nearly doubled before the inflation really kicked in.
Part of the rise (and part of central bank demand) was due to the sanctions imposed in Russia. Seizing dollars held at the Fed and euros held in Euroclear and banning access to SWIFT tends to get rogue countries focused on gold as opposed to currency.
Nobody has any really good explanations for the last 50 percent move in Gold. Short-covering (some people sold into the rally betting we’d see a correction after Diwali- whoops) is part of it, your point about Asian demand, and also momentum traders.
Gold can’t really be the replacement for the dollar, though- there isn’t enough of it around, even if it appreciates another 10x.
The Euro also can’t replace the dollar. It has neither a bond market nor a government nor a real central bank, and it has a trade surplus- meaning people owe euros rather than accumulating them. Moreover the ECB wants the currency to be weak to support manufacturing.
RMB can’t replace the dollar. China has capital controls, no rule of law and a trade surplus. You also pointed out that China prefers a weak currency.
As for the Dollar- it is basically back to pre-Covid levels against the Euro, which makes sense. There was a flight to quality during the COVID scare as the US had the financial firepower to stimulate. Good for the dollar. Now the rest of the world is recovering and things are normalizing. The current levels for the Dollar Index are unexceptional.
Gold is interesting. The Swiss Franc is interesting and the Yen is interesting. I’m not sure it is really a Dollar story though. Not yet, at least.