Almost a year ago (May 2024) I wrote in my Q1 Returns Report that I liked the idea of Gold as a go-forward investment. I put 2.5% of Net Worth into Gold and Bullion early last year.
Snippet below for reference
Since then there has been a lot of price change. Gold and Silver both heading for new highs. Here is a chart of Gold over the last year. Roughly a 24% increase from May.
Without government intervention, price is a function of supply and demand. Clearly the supply/demand factors have been slowly changing.
From what I can tell, the Gold news from the last two weeks has been quite exceptional and different to recent times. Lets investigate some interesting recent news with Gold!
Curiosity #1 - Basel III
Something not mentioned too much in the news are the Basel III changes
A global regulatory framework for banks, redefines liquidity and capital requirements to enhance financial stability. A key component is the classification of High-Quality Liquid Assets (HQLA). These are assets that can be quickly converted into cash with minimal loss. Traditionally, government bonds and cash qualify, while gold has been excluded.
Importantly - recent ongoing discussions between the London Bullion Market Association (LBMA), the World Gold Council (WGC), and the Bank for International Settlements (BIS) aim to reclassify gold as HQLA. If successful, this shift would significantly increase central banks’ demand for gold by allowing it to fulfill liquidity requirements. Banks would be incentivized to hold more gold, strengthening its role as a monetary reserve and reducing reliance on fiat-based assets.
This potential shift would change the demand from banking for Gold. Rules were set to commence Jan 1, 2025
Curiosity #2 - Fort Knox
From a get things done point of view - I don’t think another human has ever done as much in such a short time as Elon Musk. It boggles my mind as to how he runs so many companies, launches an awesome new AI (Grok3), has 2 babies and becomes an unrivalled force for change in the US Government within the same month. Truly astonishing.
Along with the diet that he is been helping put the Government on, he has been shining the spotlight on transparency and accountability for the US’s gold stored at Fort Knox. He wants an audit of the gold.
There are a few issues with the potential of auditing the gold. First of all - they would need to audit all gold holdings at all locations simultaneously. It wouldn’t be beyond belief that they could transport it from one location to another location the next day.
Even if they did have gold there, how do we verify ownership?
The custodians of the supposed gold don’t seem to care for the public’s demands to see proof of its existence. I don’t think they have much to gain from an audit.
The risk of missing gold could cause irrational panic. Not that the gold means anything really - the US left the gold standard a long time ago.
Curiosity #3 - The Mysterious US Buyer
There are reports that have been circling for the last 2 weeks that someone in the US is taking large deliveries of physical gold. I believe large amounts of gold have been flown from London to the USA.
It could be the re-stocking of Fort Knox.
It could also be Banks or the Federal Reserve trying to get the jump on other world Governments.
If we suddenly get a global consensus that Fiat is worthless and nations flip to a Gold backed currency, the person with the most Gold in hand is the winner.
Curiosity #4 - Technical Default from the LBMA
Generally speaking, futures contracts don’t typically take delivery of the underlying commodity. Now things are changing.
Deliveries of gold from the London Bullion Market Association (LBMA) went from a few days to 2 months. At which point do you say that a delivery date is a technical default?
More and more futures contracts are being exchanged for actual delivery and 8 weeks delivery to me is a technical default.
If I think strategically, I would have expected foreign adversary countries to have been plowing money into the Western dominated bullion exchanges and trying to redeem for actual bullion. The intent being acquiring cheap bullion with the side effect of trying to topple the system and destroy confidence in the exchanges.
It has been well-documented for some time that there is an outrageous paper to physical ratio. I remember first hearing it from a London based whistleblower in 2007.
I took these numbers from the US Debt Clock website.
How this reads is that there are 378 claims to a piece of silver. So if everyone tried to claim their silver at the same time, 377 of them would walk away with nothing.
The True Price of Gold
I have a theory that I have not investigated yet, but makes a lot of sense as a thought experiment.
The theory is that Governments utilize short selling to artificially depress alternatives to their native currencies. Gold, Silver, Bitcoin.
They kill the demand so that people favor the currency such as the USD.
In theory they would “print money”, use this magicked money to sell shorts on commodities. The people selling the shorts by definition don’t own the underlying asset (say Gold or Silver), so it makes it look like there is a lot of supply, affecting the demand side of the equation. The price is organically determined by the supply/demand ratio.
It would bias an organic market to become bearish or trade sideways.
Now why do I bring this up?
What I’m saying is $3,000 dollar gold isn’t correct. Nor is $31 dollar silver
There is a lot going on! None of it hints at a sideways price for Gold.
It is amazing to watch the columns holding up a corrupt, enslaving financial system crumble, break in my life time.
Maybe Western control and manipulation of Gold prices is broken up and it shifts to China. Maybe the scramble for Gold by banks and central banks picks up. Maybe Western Retail investors get wind and start buying.
I will be watching it closely.
I worked for the the worlds largest exchange for financial derivatives for 3 years a number of years ago, I can tell you 100% the price of precious metals and crypto are manipulated by short sellers.
What will blow the scheme up is silver, because the price is so low, it's consumed as an irrecoverable industrial commodity that requires physical delivery of the underlying asset where the shortages are clearly visible.
Also the market is so small, it doesn't take a lot of demand to send the price of silver to the stratosphere. That's how the Hunt Brothers cornered the market in 1980.
Put into perspective, in 1980, you could buy a house in the US for about 1200 oz of silver or 70 oz of silver.
Today, 1200 oz of silver is $37,200 while 70 oz of gold is $210,000.
A house today for $210,000 isn't that far fetched, but can you imagine buying one for $37,200?
I've known this for over 15 years, and sold almost all my retirement savings after the 2009 Financial Crisis when I first learned it.
I have been accumulating gold and silver (mostly silver) ever since.
The other element to consider is geopolitical.
In 1980, the Cold War hit one of the hottest point since the Cuban Missile crisis in 1962, and gold very rapidly hit an all time high, as it is now.
Within 3 years, the world came dangerously close to a nuclear exchange between NATO and the Soviet Union.
Today, we're even closer to nuclear war than either 1962 or 1980 and the price of gold specifically is reflecting that geopolitical sentiment.
In the past few days, all the European leaders (and the Canadian Prime Minister) have signed onto an agreement by British Prime Minister Starmer that included a provision to send NATO troops into Ukraine.
If they follow through, that could trigger an extremely violent response from Russia which could very quickly escalate to a nuclear war.
I wouldn't be surprised if that happened to see the British Isles eradicated by the Russians and there is no limit to how high gold and silver would go if that were the case.
The recent correction in gold and silver appears to be an excellent buying opportunity. Silver especially looks fantastic after dropping over 10% in 2 days.