Gold gleaming resulted by Dollar dance.

19-July-2020, Surat

Gold is a shining embodiment of wealth & it has extra bling. Gold has a history of enthralled humanity since ancient times but long story short here, I jolted out some important aspects only.

US has its special relation with gold when they enact April Act 1792, to establish mint and coins regulation of United state of America, which established a fixed price of gold to US dollar

The gold standard is a monetary system where a country's currency or paper money has a value directly linked to gold. This era was known as a “The Gold standard”. 1971 Nixon Shock, Convertibility of dollars for gold stopped, Gold & Black Gold(Crude oil) are Cousin bro. while the US is farther for that. By 1971 the US keeps half of the world's gold reserve. Those days Value of energy derived from Gold. We can't imagine, US to print and export more dollars than it had gold backing them, which raised concern about the parity of $35 dollars per ounce. As a consequence, foreign central banks started redeeming dollars for gold at the U.S. Treasury. 

The vast gold reserves of the U.S. began flowing out and ended up mainly in Western Europe(Spain). In an attempt to stabilize the international monetary system, a consortium of eight Western central banks set up the London Gold Pool in 1961 to keep the gold price in the free market at $35. But LGP has been collapsed, Excessive inflation of the US money supply, in part to fund the Vietnam War, led to the US no longer being able to redeem foreign-held dollars into gold, as the world's gold reserves had not grown in relation, and the payment deficit had grown.

Over the past 5 years, Canada has lost 78% of its purchasing power against gold & US 74%. Not gold is going up, but local fiat currency tumbling! GOLD is a real value MONEY while currency will be adjusted with inflation.

Gold and Dollar has a inverse relations since 1971, when gold price been decided for the floated term. You can get this like falling dollar increases the value of other countries’ currencies. This increases the demand for commodities including gold. It also increases the prices. While the US dollar starts to lose its value, investors look for alternative investment sources to store value. Gold is an alternative. GOLD will become a new asset class for institutional investors as investment properties become clear. This means no need to own government bonds at 1% or lower when gold can do similar jobs in the portfolio.

In its frantic scramble to save the American economy, US printing $ is just like printing word files. This Prints injecting into the US economy. This will all lead to the devaluation of the dollar. We call this inflation when in reality it's devaluation. This devaluation will eventually lead to a loss of faith in the dollar & people will no more want to hold the fiat currency. As a result, people will want to convert their cash/wealth to something that they believe in, something that can protect their wealth with, something that has intrinsic value and that has proved its worth over decades. 

With this infusion of low Fed interests triggers the Gold price at 9 year high at around 1900$. Gold is a decade long history of being used as a currency which free from most risks which associate with fiat currency. Now dollar has its own dance since WW1 (Bretton Woods system). When the last vestige of the gold standard was terminated by the US in 1971, circumstances forced European central banks to go along with the dollar hegemony, for the time being. Slowly EU prepare for new agreements, The Euro introduced in 1999(even after strong opposition by Britain ECB signaling that a new system that incorporates gold is approaching.

US economy best to finds its peak and dollar going to weak(in terms of PPP) every decade especially after Trump takes the presidency on his hand. Economy more befuddles and more flummoxed by the trade war between the US and China, these rising two poles destabilized Duncan Draft's dream of free trade. 

Piece of Information

When the Chinese Communist Party took control over China in 1949 it effectively banned the private use of gold. Since the 1980s, Chinese citizens were slowly allowed to buy gold jewelry, and in 2002 the Chinese gold market was fully liberalized with the launch of the Shanghai Gold Exchange.

Total above-ground stocks (end-2019): 197,576 tonnes

• Jewellery: 92,947 tonnes, 47.0%
• Private investment: 42,619 tonnes, 21.6%
• Official Holdings(Held with Central bank/Government): 33,919 tonnes, 17.2%
• Other: 28,090 tonnes, 14.2%
• Below ground reserves: 54,000 tonnes 

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Jignesh Desai