Gold.

“Where all think alike, no one thinks very much.” ― Walter Lippmann

March 8 (Reuters)Gold extended its rally towards a record high on Tuesday, after investors made a beeline for the traditional safe-haven metal on mounting fears around the Russia-Ukraine crisis, with the U.S. and Britain saying they would ban oil from Moscow.

Today gold prices flirted with a multi-year and all-time high. Panic has finally set in for the market’s speculators. As it is rarer to find a one-ounce nugget of gold than a five-carat diamond, the precious metal has been traded for centuries as a safe & stable medium of exchange. Gold coins were first struck on the order of King Croesus of Lydia (modern-day Turkey), around 550 BC. The coins circulated as currency in many countries before the introduction of paper money. Once paper money was introduced, currencies still maintained an explicit link to gold, as the paper was exchangeable for gold on demand. 

Gold was among the first metals to be mined because it commonly occurs in its native form, not combined with other elements. Today, gold settled at $2,051 an ounce just off the $2,075 all-time high. (see below)

Chart created using Tradingview.com

“The combination of soaring energy prices, grain prices, base metal prices is culminated in dramatic inflationary pressures that continue to be the major underlying support behind gold moves higher,” said David Meger, director of metals trading at High Ridge Futures.

Add the US senate to gold’s shine. A bipartisan group of US senators has teamed up to propose a bill that would prevent Russia from using its $132 billion gold stockpile to ease the burden of crippling Western sanctions, according to Axios.

The hastily conceived legislation would apply restrictions on American entities making gold transactions with Russia’s central bank holdings. 

The senators backing the bill — who include Independent Angus King, Republicans John Cornyn, Bill Hagerty, and Democrat Maggie Hassan — aim to include the sanction on Russian gold in the omnibus spending package that lawmakers hope to pass by Friday, Axios said. 

“Russia’s massive gold supply is one of the few remaining assets that Putin can use to keep his country’s economy from falling even further,” King said in a statement to Axios. “By sanctioning these reserves, we can further isolate Russia from the world’s economy and increase the difficulty of Putin’s increasingly-costly military campaign.”

Allow me to insert my two cents into the Senator’s “jump on the bandwagon” legislation. Wars have been started over a lot less than attempting to keep a leader and their people from accessing their money in the world markets. Is it the Senators’ intention to start World War III? Or are the fine Senators trying to avoid looking feckless in the face of a conflict they should have headed off from the outset?

Below is a chart of the world’s leading gold producers in 2020. Please notice China and Russia are #1 and #2 respectively and are considered to be politically and policy aligned, even in the light of the Ukraine war.

The 2020 Production Levels by Country According to the Gold Council

Let’s define “rare” as it applies to Gold. Only around 190,000 tonnes of gold have been mined since the beginning of civilization. By contrast, about 3,500 tonnes were mined last year.

Experts talk about the concept of peak gold – when we have mined the most we ever can in any one year. Some believe we may have already reached that point. Other disagree. Gold mine production totaled 3,531 tonnes in 2019, 1% lower than in 2018, according to the World Gold Council.

“While the growth in mine supply may slow or decline slightly in the coming years, as existing reserves are exhausted, and new major discoveries become increasingly rare, suggesting that production has peaked may still be a little premature,” says Hannah Brandstaetter, a spokesman for the World Gold Council. Please note the gold reserves held by the country.

Gold Reserves by Country 2021

The volume of gold reserves can be calculated more accurately than resources, although this is still not an easy task. The below-ground stock of gold reserves (with current technology) is estimated to be around 50,000 tonnes, according to the US Geological Survey. Compare that to the 190,000 tonnes of gold that has been mined in total since the beginning of time. Based on these rough figures, there is about 20% still to be mined. But most experts agree that the 20% figure is an elusive and moving target.

Gold is rare. And the supply appears to be at an end in less than 20 years with current technology. Where am I going with this?

Consider bimetallism, a monetary standard or system based upon the use of two metals, traditionally gold and silver, rather than one (monometallism). The typical 19th-century bimetallic system defined a nation’s monetary unit by law in terms of fixed quantities of gold and silver. The system also provided a free and unlimited market for the two metals, imposed no restrictions on the use and coinage of either metal and made all other money in circulation redeemable in either gold or silver.

statista.com

What if China and Russia combined their efforts to float a bimetal currency? How would the West’s currencies compare? Who in their right mind would start issuing gold or silver coins in the digital age with Bitcoin all the rage?

The Bank of Russia. No. Really?

From Russia, with Love, (September 11, 2021) The Bank of Russia issued an investment-grade silver 3-ruble coin ‘Saint George the Victorious Catalogue No. 5111-0178). The investment silver 3-ruble coin (fine metal content 31.1 g, fineness 999/1,000) has a round shape and is 39.0 mm in diameter.

The reverse of the coin features a relief image of the National Coat of Arms of the Russian Federation and the inscriptions: ‘РОССИЙСКАЯ ФЕДЕРАЦИЯ’ (RUSSIAN FEDERATION), ‘БАНК РОССИИ’ (BANK OF RUSSIA), the coin denomination ‘3 РУБЛЯ’ (3 RUBLES), the year of issue ‘2021 г.’ (2021), the chemical symbol of the metal according to Mendeleev’s Periodic Table of Elements, fineness, the mint trademark, and fine metal.

The key language in the Bank of Russia’s release, “the new coin is legal tender of the Russian Federation and is mandatory for acceptance for all kinds of payments without any restrictions at its face value.”

Hmm. What do you make of that? My idea might seem outlandish in this day and age. But I thought using nuclear weapons would be passé by now.  

I am paid the really big bucks to think outside the box. Please remember the quote at the opening of this piece. “Where all think alike, no one thinks very much.” ― Walter Lippmann

Finally, an all-time high might present a heck of an opportunity to sell into the rally. But only time will tell.

Until next time. Stay frosty.

Published by Robert Q Watson

During my first six decades on this earth, I lived life at great heights often on the razor’s edge. Consequently, I have enjoyed incredible successes and endured mind-numbing failures. Truthfully, I have had a hell of a view.

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