James Rickards: If Gold Was Just a Barbarous Relic...
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There’s nothing new about the Russian accumulation of gold bullion in their
reserve position. It began in a material way in 2009 when Russia had about
600 metric tonnes of gold. Today, Russia has 2,183 metric tonnes, a stunning
264% increase in less than 10 years. Russia is the sixth-largest gold power
in the world after the U.S., Germany, IMF, Italy and France. Russia’s gold
hoard is over 25% of the U.S. hoard, but Russia’s economy is only 8% the
size of the U.S. economy. This gives Russia a gold-to-GDP ratio over three
times that of the U.S. While these developments are well-known, the question
of why Russia is accumulating so much gold has never been answered.
One reason is as a dollar hedge. Russia is the second-largest energy producer
in the world. Most of that energy is sold for dollars. Russia can hedge
potential dollar inflation by buying gold. Another reason has to do with
the avoidance of U.S. sanctions. Gold is nondigital and does not move
through electronic payments systems, so it is impossible for the U.S. to
freeze on interdict. Yet a deeper reason is that Russia has a long-term
plan to subvert the dollar’s role as the leading global reserve currency.
The Russian ruble is not positioned to be a reserve currency, but a new
cryptocurrency backed by gold would be a good candidate.
The Central Bank of Russia will consider a new study that suggests just
such a gold-backed cryptocurrency to settle balance of payments among
willing participants. This plan is in its preliminary stages and is a
long way from reality at this point. Still, the Russian endgame has
now been revealed. The dollar’s days as the leading reserve currency
are numbered. Of course, Russia is not the only nation accumulating
gold as a means to move away from the dollar. You can certainly add
China to that list, and many others. The latest move comes from
Malaysian Prime Minister Mahathir Mohamad. He promoted the idea of
a common trading currency for East Asia that would be pegged to gold.
“The currency that we propose should be based on gold because gold is
much more stable,” he said.
I’ve actually advised Mahathir Mohamad in the past and he’s very
familiar with my writings on gold. So I’m not surprised he’s issuing
this call. The global monetary regime has collapsed three times
over the past 100 years, in 1914, 1939, and 1971. They seem to
happen about every 30 to 40 years on average. It’s now been over
40 years since the last collapse, so we’re due.
Got gold?
- Source, James Rickards