You're talking something in the region of about 50,000
dollars per ounce being a reasonable market clearing price for gold.
If you fully go back to a gold-backed international monetary system,
well, I believe that gold is under pressure for entirely understandable,
normal macroeconomic reasons relating to expectations for where we are in the rate hiking
cycle, and you've cited recent rhetoric out of the fed. That's absolutely key component of that,
but let's face it, right?
We did see this huge spike in inflation which is not simply the effect of the
unfortunate war in Ukraine, but was building throughout lockdowns.
Which gummed up all manner of Supply chains.
That's a negative Supply Shock. And yet, on the other hand,
you had governments throwing all sorts of money around to try and buffer.
The negative impact that that would all have on households and businesses.
And so you ended up with a classic classic mix of a lot more
money chasing fewer goods and the only way markets,
clear under those conditions as Milton Friedman among others taught us,
is prices have to rise. And so I was expecting us a very Substantial rise in inflation. Even back,
when the initial wave of covid-19, through in lockdown,
for being imposed and the pressures only built-in. Sure. Now, we see it right now.
We see all this pressure coming to bear and of course
it is exacerbated by the unfortunate war in Ukraine.
So I predicted already at the very start of the year that we
were going to pass through what I called at the time,
a hawkish moment and I use the word moment for a reason because
I want to de-stress It's going to be hawkish for sure,
but it's going to be very short term.
And the reason I felt it was going to be short term was because I believe
the underlying structural weaknesses of the US and global economy.
And this includes China,
the world's second largest economy are much greater than generally
assumed and that even small baby step increases in interest rates.
God forbid,
much larger ones would have a disproportionately
negative impact relative to Market.
Nations and indeed central banks would be surprised just how much negative
impact they would have on the outlook for economic activity.
They were there for pause sooner rather than later shift from
very hawkish to more neutral rhetoric pretty quickly.
Hence, it would just be a hawkish moment. I think we're approaching that moment. Now,
the moment has to come and go. We're in it right now.
It's taking place right now but I believe it is going to go.
And when it goes and markets reassess I believe in a very substantial Way That
central banks are far more powerless to act on this inflation than they thought.
I think gold is going to recover all of its losses.
This year and indeed reached new highs.
Now that will take time like anything else but I think when it does happen it's going to happen.
Asymmetrically that is the recovery will be a symmetric relative to the decline in my opinion.
First of all, to some extent higher inflation was priced in. But to some extent,
the spike that we saw absolutely was not.
I believe central banks realized that this could be problematic fairly early on,
did begin to adjust rhetoric and bit.
And I think the central,
I think central banks have been trying to build this confidence and credibility that they've
still got it and they can deal with this. They know how to deal with this and so gold.
I believe for those sort of natural reasons has struggled a bit but keep in mind this is as much
or more a u.s. dollar story as it is, a gold story. If you look at gold and Sterling terms,
pretty unchanged for the year, if you look at Golden Euro terms,
pretty unchanged for the year and you A gold pretty unchanged for the year.
So it's really a dollar story as much as anything else, it's as if the dollars,
the outlier and not gold.
Now, of course, that begs. The question,
why is the dollar so strong?
And I believe that has to do with perceptions that the u.s. is still a safe haven that the u.s.
is the so-called cleanest dirty shirt and that the US economy is therefore better able
to absorb higher interest rates without causing Serious economic damage.
I fundamentally disagree with that and I know that's a controversial view,
but I think the dollar is overvalued here and has a lot of exposure to the downside.
When we pass through this hawkish moment,
as we discussed a moment ago, as I did suggest,
I think these these perceptions about the relative
superiority and flexibility of the US economy.
First of all,
I believe they're already basically priced in and I also think they're simply overblown.
That is,
let's keep in mind.
The US has gone through tremendous structural changes over the past couple of decades.
It's got a far higher average tax rate than it used to have.
It's got far higher household corporate and public sector debt to GDP than it used to have.
It's got a far more expensive and difficult regulatory burden to comply with than it used
to have this idea that the u.s. is fundamentally a more flexible Dynamic economy.
Than others around world is simply as hard as increasingly hard to make that case today.
And I believe that will begin to show up in the data that
the US economy is unable to last with strength,
if interest rates continue to rise and the FED will blink sooner than most, people believe fact,
is that nobody can print gold, nobody can create gold.
You only can come up with more gold either by exporting, more than you.
Art.
And then, of course, you Gold or, of course, you find a way to dig more out of the ground.
But that's expensive takes time and money.
And you only do it when the price of gold is sufficiently
high to make that economically worthwhile.
And so, the supply of gold becomes kind of a self-regulating system vis-à-vis,
the demand for gold and that to me is a much much better basis for
international trade and growth than the system we currently have,
which is one where nobody can really agree your no,
it's nice to know that mother.
Nature determines how much gold is available as opposed to,
you know,
the country across the way with which you do trade,
but you don't necessarily completely trust to honor. Its commitments.
Maybe indeed, you'll fall prey to economic sanctions at some point.
Do you really want to be holding Assets denominated in that country's currency?
Where as you know,
gold is no National Asset in that sense it belongs to the planet and and
was created by Mother Earth. So to me, it kind of solves this problem.
Of mistrust, distrust competition, and yet also cooperation at the international level,
it facilitates,
all the good things about International Trade, while mitigating potential,
bad things about monetary manipulation.
Well, the confiscation concern is, theoretically always there, let me discuss that in a moment.
In first answer your first question, right?
The fact is is that we're not going to not knowing just going to wave a magic wand
and somehow get us back on the gold standard. It's not going to happen that way.
It might be quite disruptive. It might,
it might be only mildly disruptive depending on how it's done,
but you still have to go through a transition period.
The transition period will have to re price gold to a level which allows it to be valued vis-à-vis,
the global asset base and global trade volumes in a way that implies equilibriums,
what I mean by that is that today, the gold price is too low to allow markets.
Clear because assets are overvalued visiter gold,
and you need to rebalance the global economy.
Such that you don't have these imbalances, which are huge, right?
As a result of all the dollar accumulation as reserves
through the decades of Bretton Woods.
So, the gold price needs to rise by an order of magnitude in order to allow that system to work.
So you go through this, phase transition,
when the price of gold has to rise by an order of magnitude.
In my book, I go through some cow Calculations what that order of magnitude would be,
and indeed, they're based on calculations that have been made before by other economists,
including under Bretton Woods. I mean, would you believe we take it for granted? Today,
we think OG Bretton Woods, the stable system, it just worked, nobody questioned it.
That's not true.
There is lots of debate and discussion during already the 1950s.
But in particular the 1960s that the u.s.
money and credit Supply was growing too quickly to be credibly backed by gold anymore.
Allow Bretton Woods to function and so there was already dispute going on.
That gold was going to have to be revalued at some point and indeed gold was revalued.
Before Bretton Woods broke down completely.
They tried to go through a revaluation process but it just wasn't enough.
It didn't properly rebalance international trade and as an old blew up in the end when the u.s.
basically lost patience with the rest of the world.
So,
you know, that's how it happened then.
But back then the world was still very unipolar in.
Tickle, economic and military terms. It's far less. So today.
So I think today, the revaluation that goal would have to go through to imply a stable.
International monetary equilibrium is huge and by implication. According to my calculations,
you're talking something in the region of about 50,000
dollars per ounce being a reasonable market clearing price for gold.
If you fully go back to a gold-backed international monetary system,