This is like a mathematical formula, every country has to decide what tier 1 currency they are going to use for foreign trade. They have two choices, the US dollar and Gold.
1. It used to be that the US dollar paid interest (you buy the treasuries) and that interest was greater than the inflation. In this case it was pretty much a no brainer.
However, that was because the US dollar was seen as being apolitical. It didn't matter what the politics are, you could use the dollar without any impact. But, recently they have seen the US dollar has been weaponized. So then, if you are a country that thinks they too could be the victim of of this weaponization, then of course, gold is far better. But also, if you are trading with a country that thinks it might be a victim gold is far better, they will not be willing to trade in US dollars. These are basically the BRICS nations moving from the US dollar to Gold.
But there is another reason, and that is the $36 trillion in debt. Who can afford to loan that money to the US? At one point the UK was the biggest holder in our debt, then Japan became a major buyer and then China. But today China and Japan are selling US debt and the UK is no longer in a position to be a buyer. So then with the US losing their buyers, in fact the amount of countries still buying could be completely offset by those selling. This creates two worries for anyone buying US debt. First, the US could go bankrupt and your bonds will become worthless. There are many reasons to think this could be a concern and everyone knows it will be a game of musical chairs where many bond holders will no longer have a way to sell their bonds. But there is an even more pressing concern and that is that inflation will be greater than the interest paid. In the last year gold is up 50%. Think about that, this eliminates any reason why you would want to use the US dollar as a tier 1 asset. If my gold is appreciating faster against the US dollar than the interest rate the bonds are paying, why hold the bonds? In fact this is true of the last two years. You can be sure that Central banks and the leadership of the various countries are all keenly aware of this.
In fact, if you look at how gold has performed over the last 50 years compared to all the stocks on the stock market 50 years ago, gold has outperformed 99% of them. So gold is looking better over the short term and over the long term. If you hold physical gold you don't have to ever worry about it going bankrupt or being caught in a scandal. Ever since the US dollar came off the gold standard gold has essentially outperformed the dollar. Now obviously you can pick narrow time ranges where that is not true, but over the last year, the last two years or over the last fifty years it is true. This means it is the investment with the lowest risk and the greatest reward.
Which is why I have said this is like a mathematical formula. What central banks are concerned with is risk vs. reward. To have an investment with the lowest risk and also the greatest reward is prior to this unthinkable. It always seemed you needed to pick one or the other.
But here is the other point, as the world moves from the US dollar to gold the price of gold will rise and the value of the dollar will fall. If the entire world were to make gold the reserve currency it would increase in value by 40x. No one is suggesting that is about to happen, but what they are saying is that there is tremendous upward pressure on the price of gold. For it to double, triple or quadruple in price is being suggested. Think about this, another year with gold outperforming the US dollar and no one will be able to continue to afford the losses of holding treasuries.
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