Gold’s Return as Money

Alasdair Macleod introduced his February 16 article titled “Gold’s Return to Money,” as follows:

According to evidence which is widely ignored in western capital markets, a move by Russia to put a new trade settlement currency and possibly the ruble as well onto a new gold standard is becoming a certainty. As a weapon of mass fiat currency destruction, the timing is probably bound up in on-the-ground military considerations, which are already showing signs of escalating in Eastern Ukraine.

As well as using gold to undermine the western currency system, a return to a credible gold standard has significant advantages for Russia and for her allies in the Shanghai Cooperation Organization, the Eurasian Economic Union, BRICS+, and all their commodity suppliers beyond Asia. At the same time, it would destroy the west’s fiat currencies and financial system. This article explains how one part of the global economy can thrive while the other collapses.

Alasdair started out the article with the following quote from Russian President Vladimir Putin in June 2022 at the St. Petersburg International Economic Forum: 

Caught in the inflationary storm, many nations are asking, why bother exchanging goods for dollars and euros when they are losing value right before our eyes? Indeed, the economy of imaginary wealth is being inevitably replaced by the economy of real valuables and hard assets. 

According to the IMF, today’s global foreign currency reserves contain 7.1 trillion dollars and 2.5 trillion euros. And this money is depreciating at an annual rate of about 8%. Moreover, it can be confiscated or stolen at the whim of the US if it disapproves of something in a country’s policy. 

I think this has become a very real threat for many countries that keep their gold and foreign exchange reserves in these currencies. According to objective expert analysis, in the coming years a conversion process of global reserves will get underway. Reserves will be converted from weakening currencies into tangible resources like food, energy, commodities, and other raw materials. Clearly, this process will further fuel global dollar inflation.

The United States and NATO promised Russia when the Soviet Union fell that it would not expand NATO by incorporating the former Soviet satellite counties of Eastern Europe into NATO. Of course, almost all of those former dictatorships have been added to NATO. When the U.S. threatened to add Ukraine into NATO, that was a bridge too far for Russia, who felt threatened by America’s desire to overthrow its government. Now we are stuck in a war that neither side is willing to end. It seems President Eisenhower was indeed right when he worried that America’s Military Industrial Complex would one day ruin our democracy. While the Biden Administration has destroyed America’s southern borders it is very concerned about protecting Ukraine’s borders and it is willing to spend billions of dollars there while ignoring massive problems in the U.S. like drug addiction, like some of the five million illegals crossing our southern borders bringing in Chinese exported Fentanyl, and like letting the people, fauna, and flora of East Palestine, Ohio, suffocate in the toxic fumes of a tragic train derailment. That that small town voted 70% for Trump, the first President since Eisenhower who tried his best to avoid foreign wars and the overthrow of foreign governments, I guess sealed their fate! Neither Ike nor The Donald were appreciated by the Military Industrial Complex! 

As Putin observed, the purchasing power of the dollar and euros is depreciating rapidly because those currencies are created out of thin air and have no intrinsic value. The U.S. has used its miliary might to enforce dollar hegemony and now American policy has been to deny Russia and other countries supporting Russia the ability to use dollars in trade and the international SWIFT monetary transport system. That has forced those nations wishing to retain their sovereignty to opt out of the dollar system and in to yuan, which can in effect be backed with gold. The last nation to opt out of dollars in favor of yuan was Iraq, which country announced that decision just last week, on February 22.

We Americans are used to valuing gold in terms of dollars. A far better measure would be to think of dollars in terms of an ounce or gram of gold. The price of oil in dollars and other currencies and in gold tells the story. Putin referred to these fiat currencies as “make believe” currencies and he is exactly right. They have value only to the extent the populace has confidence in them, and that confidence is starting to decline dramatically.

So, there is now an alternative for countries wishing to fight American hegemony, not with bombs and bullets, in a peaceful economic war built on the solid ground of a gold-backed currency rather than dollar fiat, which has been used as a weapon against America’s adversaries. As noted on the slide on page 1, with both oil and gold futures markets now functioning in Shanghai, Saudi Arabia can sell—and I believe is selling—oil to China not in dollars but in yuan. It can either keep the yuan or use it to buy gold, which, as the chart on page 1 demonstrates, has retained value far better than the dollar has for the oil Saudi Arabia has sold. And now another oil producer, Iraq, is apparently willing to do the same thing. I wish we would put our arms down and join these countries in commerce but that doesn’t seem likely. The Military Industrial Complex would rather risk nuclear war than to give up a life and systematic) theft!

What will this mean for the price of gold? The late, witty Ian Macavity once said, “A barrel of oil is a barrel of oil. An ounce of gold is an ounce of gold. What is a dollar?” With American and virtually all western governments seeking to turn their once thriving democracies into totalitarian dictatorships, I’m feeling increasingly uncertain about everything these days, including the value of owning gold. The country you live in is run by a despot who can do anything to you he wants at any time he wants. We started getting a taste with the very non-scientific approach to COVID 19 and more importantly the fascist approach of government using private corporations to censor sound scientific ideas that didn’t match the Biden Administration’s political-science-dictated policies. As for me, I’m going to live by what it says on our currency—which America claims to do—and that is to put my ultimate trust in God. And to the extent we are still permitted to own gold, secondarily, put my earthly trust in that yellow metal because it was created (by God) for use as money by humans. Placing savings in gold and gold shares is something within our control and as good stewards of the blessings God has given us, we need to own gold if we are able. Regarding the things we can’t control, I am putting my trust in God rather than in humans who have not had a very good track record. Consider for example the dictators of the last century who had no faith in God our Creator, like Hitler, Stalin, Mao, and Pol Pot, to name just a few. Unfortunately, there are increasing numbers of western leaders who, like the bloody tyrants of the last century consider themselves God of the universe. Do you trust them?

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.