Is gold expensive? S&P 500-gold ratio historical performance: The big picture:

 

THE CAPITAL WAR: WHO WILL WIN?

 

Everyone's  talking about the Trade War.  The fact is nobody wins a trade war.  Some lose more than others.  It's fun to talk about who loses most.  But that's not what will change the economic world.

What will change the economic world is the Capital War.

What is the capital war?

It is the other side of the coin of the trade war.

When you buy a good or a service you are also SELLING A DOLLAR.

The US has been selling its dollars all over the world for the last 50 years.  And we have been running huge CAPITAL SURPLUSES.

This is the heart of American Excetionalism.  

Why?

Because we have the reserve currency.  That means when all the other countries buy our dollars they use them to turn around and BUY OUR DEBT,   Because our debt is a Tier 1 Capital Reserve Asset.  

This underwrites our huge debt.  It also provides liquidity to the huge Eurodollar debt market.  And it keeps our rates low so we can refinance our debt cheaply.  AND When we sell our dollars we get cheap well made goods it return, which keeps our inflation rate low.

And most important: it provides tremendous liquidity for all dollar denominated Debt Markets.  

Without this liquidity the potential for a global debt crisis becomes dangerously high.

If liquidity dries up in the debt markets the only response is a massive infusion of printed money by the global central banks.  This will be highly inflationary.  Great for Gold.  Great for the super wealthy who own most of the hard asset market.  Not so good for everything else.

The US Capital Surplus (the other side of the Trade deficit) has been the single greatest Deal in recent economic history, bringing unpredcedented prosperity through unprcedented global liquidty.  That is why evey administration for the last 50 years have engaged in it.

Unitl now.

Now are undoing this deal.  

Why?

To bring back manufacturing which is only 20 pecent of our economy and will go to automated factories over the course of the next 20 years so few  jobs will be  created.

Doen't seem like a good trade.

Especially since now GOLD is also a TIER 1 reserve asset.

So now we are agressively demanding other countries not buy our dollars and thus not buy our debt.

And they are obliging.   

So what do they do with their excess capital now?

Well, they buy the only other Tier 1 reserve asset: GOLD.

HOW TO VALUE GOLD?

Now that gold has broken out into new all time territory the question remains: How do you  value gold?

How high can it go? 

How far can it fall?

Is it fairly valued here?

You can not answer this question without understanding the very first principle of gold valuation: 

GOLD NEVER MOVES.  THE PRICE OF GOLD OVER TIME IS ABSOLUTELY CONSTANT AND HAS BEEN SO FOR THE LAST 6000 YEARS OF HUMAN HISTORY from about 3500 BCE to about 1973 AD.

What moves NOW - since 1973 -  is the purchasing power of the Reserve Currency; the US dollar.

THE US dollar's stability was originally  pegged A) to NATO and B to the Petrodollar, the two underpinnings of a unipolar world.   Furthermore the US Treasury was the reserve asset of choice in a world wherein the US ran a trade deficit and a fiancial account surplus, which enabled other countries to keep buying our debt and financing our liflestyle.

At the same time the dollar's stability was regulated by the LBMA and COMEX.

NOW: NATO is dead.  The Perodollar is all but dead.  The US has weaponized Treasuries so nobody wants them anymore.  The world has become multipolar.  And the LBMA and COMEX have been neutured by stand for delivery Contracts as the world's reserve banks sell US Treasuries and load up on gold.

At the same time the US debt has spiraled completely out of control.

And it is a about to get much worse with a new round of tax cuts.

The "savings" from geting rid of some government workers will add to the debt as they will all have to go on the dole rather than providiing essesntial services.  And if there is no dole, the savings will simply go into "Sovereign wealth funds" which buy Crypto and other useless assets.

So in this new world what is the value of GOLD?

Nobody knows.

All you can know for sure is the direction things are moving.

And right now things are spinning faster and faster towards a world where nobody want Treasuries (except domestically as a short term hedge against recesssion) and everybody wants Gold.

Invest accordingly.

POP QUIZ; ANSWER THIS AND YOU WILL UNCOVER THE SECRET TO INVESTING:

 

QUESTION:  WHAT ARE  THE TIER ONE RESERVE ASSETS THE GLOBAL CENTRAL BANKS ARE ALLOWED TO HOLD UNDER BASEL 3? 

ANSWER:  US TREASURIES AND GOLD

QUESTION: UNDER THE CURRENT ADMINSITRATION WHICH CENTRAL BANKS ARE ADDING US TREASURIES AS THEIR TIER 1 RESRVE ASSET:

ANSWER: ONLY THE US CENTRAL BANK

QUESTION: UNDER THE CURRENT ADMINISTRATION WHICH CENTRAL BANKS ARE ADDING GOLD AS THER TIER 1 RESERVE ASSET?

ANSWER: CHINA, RUSSIA, POLAND, INDIA, GERMANY, FRANCE, AUSTRIA, INDONESIA, ITALY, SWITZERLAND, NETHERLANDS, THAILAND, SAUDI ARABIA, KHAZAKSTAN, UZBEKISTAN, TURKY, SINGAPORE, UAE, EGYPT, QATAR, BRAZIL, VENEZUELA, CHILE, ETC ETC ETC

NOW WORK INDUCTIVELY AND FIGURE OUT WHY THIS IS SO.

THEN YOU TOO CAN INVEST LIKE A BILLIONAIRE - OR A CENTRAL BANK

GOLD: US VS THE REST OF THE WORLD: ONE OF THESE THINGS IS NOT LIKE THE OTHERS

 

Central banks stay bullish on bullion in January

• Central banks reported 18 percent of net purchases at the start of 2025 
• Emerging market central banks remain at the forefront of net buying, with Uzbekistan, China and Kazakhstan the top three buyers 
• Poland and India also continue to accumulate gold reserves 2025 – both central banks added 3t to their respective reserves in January

China sees record gold ETF inflows in February, jewelry demand should stabilize as the economy improves – World Gold Council

“European funds saw their largest monthly inflow since March 2022," with strong demand in the U.K. and Ireland dominating trading activity. Regional ETFs added 39 tonnes of material to take total holdings to 1,327 tonnes. AUMs rose $3.4 billion, to $120 billion.

Gold breaks records, US ETF retail investors pull back—inflows crash 47%!

   Someone is missing the boat,  You decide who it is.

GOLD MAKES ANOTHER ALL TIME HIGH - EVERYONE NOTICES BUT AMERICA

Gold  made another all time high, and another all time closing high today.  Still nobody in the United States seems to notice or care.  Everybody here is still looking for a bottom in risk assets.

But all around the globe everyone else is buying gold.

Central Banks around the world are buying gold because ithe only Tier One Reserve Assets are gold and US Treasuries.  And nobody wants to hold US Treasuries any more.  There is no longer any guarantee the debt will be honored.  Everyone must prepare for the possibility that it will be seized and confiscated, or simply defaulted upon at the whim of our chief executive.

That may seem absured to most Americans.  The problem is it doesn't seem absurd to the other central bankers of the world.  That's why the comex is being overwhelmed with Stand For Delivery orders and the price of bullion is rising.

Similarly Gold is the only monetary asset that has no counter party risk.

Think about that.  It can not be hacked or hypothicated or confiscated or diluted or defaulted upon.

And is has a liquid and easily disvoverable value anywhere in the world.

That gives it a pretty special status in today's Kleptocratic Economy.

It is the citizens' only monetary defense against the State.

If you don't think that is valuable right at this moment, then don't buy it.  Now.

You can just as well buy it later.  Though it may be much harder to find.

THE BULLION PREMIUM STARTS TO MOVE - DON"T BE THE LAST ONE IN

1 oz American Gold Eagle Coin BU (Random Year)

Top Pick 

$3,047.89

GoldPrice. 
WHERE THE WORLD CHECKS THE GOLD PRICE

Holdings 

2,911.17

-9.02

-0.31%

Premium over spot gold: %4.6 

The above is the basic gold price for a quantity of US Gold Eagles at Apmex the largest US bullion dealer. The premium in historical terms is still quite low.  This tells us that despite the impressive run up in the gold price, very few Americans are buying gold.

It also tells us that this is currently changing.  The spread has widened a almost 2 percentage points in the last 2 weeks.

The US domestic economic situation it rapidly deteriorating.  All those who thought that Tarrifs were simply a clever bargaining ploy have been proven wrong.  They are now premanent policy.  And they accomplish three important things for GOLD.

1) They are highly inflationary, as they are paid for almost entirely by American business and consumers.

2) They are a massive drag on business activity and economic growth.  These two factors spell Stagflation, which has entered the vocabulary of almost every economist not employed by the current administration.

3) Perhaps most important for Gold: Tarrifs weaponize the US dollar thus destroying the usefulness of the US dollar as a reserve currency. 

Even as the US was running a current account deficit (trade deficit) we were also running a commensurate financial account surplus.  This meant that while other countries sold us goods they also bought the US dollar which they then recycled into US DEBT thus financing the US lifestyle, keeping goods cheap, inflation under control and growth humming.

This game is DEAD.

And the only beneficiary is gold.  Every Central Bank in the world now understands this.  The central banks of the world are selling US debt and buying GOLD.

At some point the US consumer will catch on to this new game.  Then Gold will really move.

Don't be the last to catch on.

 

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