After nearly a month of frigid weather, the snow has finally thawed here in the mountains of Virginia. The temperature surpassed 40 degrees over the weekend… and it felt like Spring.
I already miss the winter wonderland. There’s something beautiful about seeing a white landscape in all directions.
I could go for another month of this view. Alas, it’s time to get back to reality. And that’s exactly what we have to do in the world of finance and economics as well…
If we step back and look at it objectively, we can see a clear shift in American society several decades ago.
My grandfather raised five kids on a blue-collar railroad salary. His wife worked hard, but not for a salary and not for somebody else. She took care of the family, the house, and the local church.
That was normal at the time. But somewhere between then and my father’s adulthood, the dynamic changed.
At some point it took two incomes to maintain the household with any degree of comfort. So it started to become normal for the Mrs. to work as well.
Today, it’s not even an option for most households. Two incomes is a requirement given how much the cost of living has risen in recent years.
And somewhere in there, Americans were taught that they were supposed to sacrifice for money. They were taught that money is important in and of itself… and not just a tool. Our concept of what life should look like changed. The rat race became normalized.
However, it’s clear that a dramatic paradigm shift is now underway. The market is usually the first to sniff out fundamental shifts… and it appears that’s what’s happening right now.
There are now serious concerns about physical gold shortages at the London Bullion Market Association (LBMA). There’s been a surge in demand for physical shipment from institutions in the US since the presidential election.
To quantify this, financial institutions have moved 393 metric tonnes of gold from London to vaults at the US Commodity Exchange (COMEX) in New York. That’s over $35 billion worth of gold at current prices.
And this only accounts for shipments directly to the COMEX. Apparently there’s also been a surge in gold shipments to private vaults owned by JP Morgan.
This is why gold is soaring in price – even as the US dollar is surging against other currencies. Remember the days when gold was supposed to move inverse to the dollar? That’s all changed.
Of course this begs the question – why? Why are US-based financial institutions scrambling to fill their vaults with gold? Do they know something we don’t?
As we’ve discussed in these pages previously, the market is pricing in the recapitalization of the United States.
The Trump administration is serious about saving the country and it’s world-leading financial system. To do so, they will need to fix the dollar by leveraging America’s gold hoard.
That is to say, the dollar will be backed by gold in some capacity once again. That’s what the market is telling us… and why the banks are scrambling to warehouse gold.
It’s not clear exactly what this will look like yet. But it does open up some interesting possibilities.
Have you noticed how the new administration continues to float this idea of getting rid of the IRS and the income tax?
A gold-backed dollar would be essential to such a system. Let’s explore that concept more tomorrow…
-Joe Withrow
P.S. We cover the best ways to invest in gold in our monthly newsletter The Phoenician. You can find it right here: https://membership.phoenicianleague.com/courses/phoenician