One of the seminal moments during my precious metals education over the past decade was hearing former Federal Reserve chairman Ben Bernanke once explain to Ron Paul that “nobody really understands gold prices, and I don’t pretend to really understand them either.”
Certainly it was stunning to hear the former leader of the group most responsible for the monetary conditions of the world say that he just has no clue about gold or anything that goes on in that market. But the other part of his statement was simply untrue.
Because while Bernanke may not understand sound money, I would dispute that nobody else understands it either. In fact I like to think that it’s actually rather simple. In that gold is a piece of metal, that primarily just sits wherever it’s sitting. And while there are supply and demand factors, there’s also the fact that it’s quoted in dollars per ounce.
Which means that if supply and demand are unchanged, but the amount of dollars increases, the value of gold should theoretically increase as well due to the simple laws of fraction math. And that it can’t be printed by folks like Bernanke is specifically what makes it suitable as a store of value. An observation that many foreign creditor nations are seemingly understanding more and more as time goes by.
Several years ago the Germans asked for their gold back. And last month the Hungarians joined the crowd of those who want to hold on to their own gold. A list that now includes the Netherlands, Germany, Austria, and Belgium. And for those who have ever stored precious metals outside of their own possession and are familiar with just how much it costs every time you want to move it anywhere, it seems unlikely that these nations asked for their metal back simply because they didn’t have anything better to do at the time.
So it seems like these countries understand the gold market just fine. In the very least, better than Bernanke. It also seems as if China, Russia, and India, who have all been adding to their precious metals piles over recent years seem to understand something about the market as well.
Because while perhaps nobody at the Federal Reserve is capable of grasping the incredible shift that’s taking place as we speak, based on the metal repatriation, the launch of the PetroYuan, and a growing list of nations making trade arrangements outside of the dollar, it actually seems pretty clear. The rest of the world is finally noticing how much of the U.S. is financed simply by paper, and they’re starting to jump ship.
Personally I like being on that side of the trade. Because trading dollars for gold in this environment makes a lot of sense to me. As opposed to following what I hear from treasury secretary Steve Mnuchin and the others in the White House. Who seem far more focused on initiating a trade war against their largest creditor at a time when the country’s finances are in worse shape than ever.
How long the whole charade continues remains anyone’s guess. Yet especially with the stock, bond, and real estate markets all still near record highs, reallocating into precious metals at barely above the cost of production remains a great alternative.
Because in the end, do you want to follow the economist who couldn’t see his own housing bubble and admits he doesn’t understand gold? Or would you rather follow what the U.S. creditors are doing and cash in dollars for precious metals before it’s too late?