Many people wonder what the future of gold is in the face of military conflicts and central bank decisions. Here is an example of possible scenarios.
Q: Many thanks for your great service. Here are a couple of points I would like to offer to you for your thoughts:
1. There is talk of the US government (and this would lead other governments to follow) moving to a Central Bank Digital Currency (CBDC). This would potentially be the end of cryptos in the private sector. Crypto would be transferable at a given price and time for the CBDC. Like what FDR did with gold in 1933. After the conversion, cryptos would be banned. Would this occurrence or the rumor/threat of this action occurring push people back into the precious metals? How do you see this scenario playing out?
2. How do you think the precious metals will react to a long-drawn-out war in Ukraine/Europe (which could potentially morph into WW3 post-2026)?
3. How do you see the move of both Russia and China away from the SWIFT system affecting the precious metals? (China and Russia are accelerating their efforts to move to a new system in light of the recent Russian bans.)
A: Thank you. Here’s my take:
1. Well, as much as I don’t like to write it, I view the above scenario as likely. Cryptocurrencies pose a direct threat to the monetary system and the power that it grants to those that control it. Why wasn’t it banned, then? Because while it’s popular, it could get widespread adoption and then the monetary authorities could move to government cryptos that only they control.
Theoretically, there are many positives to a system where money is "intelligent" and "customizable." For example, money that is provided as social support might be used for most products, but not for alcohol or other similar substances. Supporting a specific area could be made easy. Simply put, money spent there would be worth 30% more than elsewhere, so people would rush in to take advantage of the opportunity, thus supporting the area that they were supposed to support. For example, in the case of natural disasters, it would help the area recover.
However, there are also myriads of things that can go wrong in this system. You didn’t like my party’s narrative before the elections? Swooosh!, goes the magical monetary wand—and your money is now worth only 70% of what it was worth previously. "Hey, my company’s money should be worth more, because we’re so cool, and besides, look, here’s a bribe."
Would you rather own this smart money or dumb old gold and silver that nobody can change? I’d personally go with both, but it would be more important to me than previously to have a bigger portion of my assets in physical gold and silver than before. Just in case someone with monetary power doesn’t like what I do, write, or think. Remember that those in power can change, so even by being a completely law-abiding citizen, who knows what the next government would think of that…
So, I think that ultimately it will make prices of precious metals move higher, but, of course, this is something that I see happening in the coming years, not in the next few weeks.
Who knows, maybe the global rise in interest rates (which is just starting) is supposed to make people dislike the current monetary system so that they not only are OK with the new crypto system, but they request it. Remember people shouting "Lock us down! Lock us down!" at the beginning of the pandemic?
2. Moving into a WW3 would like[ly] make the precious metals sector (especially gold) soar. However, I think that a stock-market-slide-led decline awaits us first—in the following weeks/months.
3. My reply here is exactly the same as when I replied to the question about Russia’s ban from the SWIFT system yesterday. Namely:
"This could work as you wrote above, but… history tells us that this would likely not be the case initially. Remember 2008? We had an international banking crisis (this doesn’t fully express what it was, but serves as a good summary), so the contagion effect was in full force, and what did gold do? It first declined significantly, along with the general stock market, and then came back up with a vengeance. While gold was declining, silver and mining stocks were also declining, particularly significantly. That’s in perfect tune with what I’m expecting to see in the future of the precious metals market."