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When I first got into this stuff, the thing that got me most was the gold de-pegging in 1971. Surely, we need a gold-backed system!

Well, the problem is, it’s not like they rang up the credit card a little and we just have to cut back for a few months, and then we can get back on it. No. Apparently, the last time we could get back on the gold standard was 1980 when gold went up to about $800. At that time, it equated to our national debt. Meaning, we were writing checks with treasury notes with gold in the safe to back them up. In the event we defaulted, the gold would be there to hand over.

This was not a perfect system, as fractional reserve banking was alive and well. All of the gold pegging I had read about seems to be about the nation writing these checks for things, using the cash of others, and the gold there in case things go badly. But everything I read about gold pegging starts to go off the rails when you have large commercial banks able to “create” dollars by lending them into existence. I grew up with 5% savings rates and the idea I’m putting this cash into savings, and they are lending it out for people to buy houses. Well – the banking system is far more complex than my little brain can handle at 5AM, so I wanted to leave the plumbing to others and talk about some big picture ideas here.

IF a country pegs their currency to gold, it essentially means that they need more gold in order to lend more money. OR, the price of gold would have to go up – but if your currency is pegged to it, how can that happen? The dilemma of the gold standard is – that it can be very stagflationary in a sense. If you only have a pile of a few ounces, that’s all that you can borrow into existence. That is your collateral. You can use $1000 of borrowed cash to then dig for more gold to produce $2000 in gold! Yeah, you see where I’m going with this. The 1880s-1890s in this country seemed to be one depression and recession after another.

Love it or hate it, but fractional reserve banking and “banking tech” has allowed for rapid expansion of research, technology, innovation – and unfortunately, war. If you can borrow things into existence, then buy REAL stuff with that, it gives you an advantage over your rivals. And, it’s precisely what I believe made us pretty powerful. With that, our enemies would like to attack this institution, and I cannot blame them.

They have fair points, but, I think it’s fair to say that the system they are on is far superior to a “gold backed system”. I feel gold’s place now has two major functions

1. International commerce
2. Commodities exchanges

Commodities are money!

While I have been writing for at least 2 years here that independently, I have come to the conclusion that commodities are money. Then, a few months ago, I heard Zoltan Poszar wrote the below…

“commodities are collateral, and collateral is money”. It’s so correct – and while I would love to fantasize that this guy is reading my shit, I also realize that people can independently come to the same conclusions. In my writings, you have seen this graphic I created roughly 2 years ago pop up in a lot of my writing…

In the above, you have a snapshot of a few commodities and a $20 bill with the gold seal. Remember, our “gold standard” allowed you to go to the bank and get your oz of gold. This was the claim check to the MONEY. Our “gold backed system” allowed for us to have 8100 tons of gold in vaults and use that as collateral for treasuries.

My contention was, and is, that all commodities are money, but gold is the best FORM of money. But all of these other things ARE COLLATERAL. I have heard how the Chinese have giant yards of copper and borrow against them. When you buy your house, it’s built from commodities, and you can borrow against your equity, with the home being the collateral.

I did a graphic which kind of illustrates that the best money has less utility, and lasts longer. For example, what happens in the day after a massive disaster? Those with water can sell it for lots of cash. Food that lasts a few days in the fridge is eaten up first. Frozen food that may spoil without refrigeration is eaten up. Canned goods start going up in value. As time goes on, staples like sugar, flour, coffee get more valuable. Gold and silver is sitting at the back end of this for BIGGER purchases. The point is, that in a time of crisis, you may want to call it barter, but you start to see things of value become means of buying other things of value.

At the start of that crisis, perhaps bottle water is $5 each through price gouging. But let’s say for a second, that this is a currency crisis. The first few days/weeks, the value of all of this in paper goes vertical. It gets to a point where $200 for a bottle of water won’t do you any good – people need THINGS.

I did an entire video series about how gold is the center of the financial universe. About 2 hours long, total – and with this, you can see that gold is what tied the VALUE of everything, RELATIVE to each other for thousands of years.

You can see in the above chart, that the “best” money is not consumed. It STORES financial energy the best. However, we need water and food to exist, so this money is consumed. This entire system then works because production of LONG TERM store of wealth can then be exchange for IMMEDIATE NEEDS. PRODUCTION is what creates this money in the system. And, if you think about it, EXCESS MONEY is then STORED in GOLD. At times when production is lower, gold can be sold for less stores of wealth to feed you.

THIS IS THE CORE FINANCIAL SYSTEM OF HUMANS.

Everything else is, unfortunately, a derivative of this.

Think about the gold $20 bill. It is a CLAIM CHECK to the money. It was not money.

Those of you who want to talk about fungible, divisible – these are definitions that came thousands of years after this system was created to then convince you certain things should be money and certain things not.

Exchanges

I feel the best place for gold in the 21st century is the heart of commodities exchanges. ALL of them. The PROBLEM with reserve currencies, are that to allow a fiat reserve currency to take the lead – it has certain benefits bestowed upon it. However, there’s a lot of issues with it to, that will eventually lead to that country’s collapse or lack of dominance. Many are thinking the Chinese want the Yuan to be the world’s reserve currency. DOUBTFUL. However, they want to challenge the DOMINANCE of the USD by getting many allies of the US (or even enemies) to stop using it as much.

I can go on and on about the pitfalls of having the world’s reserve currency – but the biggest I’ve observed with my 47 years on this earth are the amount of production and jobs that has moved overseas in my lifetime. Granted, a lot of this was then replaced by tech, but the clock is ticking before a lot of that goes offshore as well. What we are left with today is a soft millennial generation that has no understanding of how things work, and demand things they feel they are entitled to. It’s not necessarily their fault – but this country hasn’t seen a recession in 13 years and many of them have zero clue how bad things can get, so they have no reference point to understand how good they actually have it.

But let’s digress a second here. In every country on earth, you can get air dropped in and exchange an ounce of gold for local currency. Gold has been the world’s reserve currency for 5,000 years, and trying to push that out of existence for any type of fiat has led to precisely where we are today. We have abused the world’s reserve currency status, and used it as a weapon to attack those who do not walk in line with us. This is not really in question. The question is, what is the alternative to USD hegemony?

Gold. But not how you think.

Remember the gold/ruble thing Putin did and his currency instantly went up in global value? I believe that intimated that Russia has such low debt, that it would not really be hard for them to peg the ruble to gold. However, doing that also limits Russia the same way I explained it limited us in the past. No country wants those shackles.

So how DO you involve gold?

If you have a problem with no country REALLY trusting anyone else’s fiat currency due to debasement, well, how about we put GOLD as the center of multinational exchanges? Let’s take the Shanghai exchange, for example. Imagine, if you will, they have all kinds of commodities for sale. However, you have to buy them in gold grams. And yes, they can have fractional grams as well. The concept here is gold will and does, have value to other commodities. In my research, I had showed a “fair” value for oil as expressed in gold was about 1.2g per barrel. Or, $80 or so.

What you need to understand is this is a relative value. So this was a MEAN or so I found over about 90 years. At times, perhaps oil dips to 1g of gold, or maybe $60 in today’s USD terms. This can lead to one of three outcomes – more gold is produced to capitalize on the “cheap” price of oil, which floods the market with gold and thus the buying up of oil increases the price. OR, the low price of oil, as expressed in gold, leads to less production until a higher price comes, which squeezes supply and price rises…OR a combination of both.

This type of relationship is like a sine wave….and…if you think about that – that is also what you recognize as market psychology.

Meaning…all of the above is a “self-healing” system of price discovery. And, each and every cycle has winners, losers, lessons learned, and the strongest of them survive until the next cycle.

When you involve fiat into this model, it distorts price discovery, and then policies tend to select winners and losers. If the winners tend to be big political donors, you can see that favorites can win every single business cycle when the thumb is on the scale for them.

IF you remove fiat from these exchanges, what then happens again is natural price discovery of commodities, as expressed in gold.

No one will care how you got the gold on the exchange. “Our stuff, your gold problem”

International exchanges

I used Shanghai as an example only because they have a storied tradition of gold. But exchanges now are everywhere. To me, THIS is the vector of attack on the USD. Many are thinking the “gold peg” – but no. THIS is the way.

Imagine BRICS+ (now perhaps 80 nations) establish a system where gold is the universal currency to buy things. How does this work?

1. Buy gold on the exchange in your local fiat currency. There needs to be a counterparty there who owns gold and wants to take your currency, perhaps a local company to that currency.
2. Bring gold on to the exchange. You can sell it into the exchange for fiat (once again, someone must part with their fiat to buy your gold) OR you can simply add it in to the exchange and be credited the gold grams. Miners, for example, would be able to sell their metals to a refinery of sorts – but the refinery may then add metals to the exchanges.

Now you have an entrance to ANY exchange in the world, more or less. You are credited gold grams. The fiat OR gold was an on ramp to get into the system.

You then look at the exchange, and see that silver is priced at .5g of gold on Shanghai. In Istanbul, it’s .48. In Dubai, it’s .4. You can buy the silver from Dubai and play that arb to Shanghai. This is trading.

The bet is that silver, worldwide, would have a tight spread amongst all exchanges.

Guess what. No one care, at the international level, about the value of ANY of this in fiat currencies. Meaning, the USD cannot smash gold contracts to make the price suppressed. Rather, commodities will find equilibrium markets against each other.

Holding credits?

One MAIN reason I got involved with Kinesis was because they saw this vision many years before me, and independently seemed to also arrive to almost the same conclusion as me. Meaning, as I read more about this – and other cryptometals, to an extent, I was reading how people can exchange their fiat, to then vault gold/silver and their account is credited gold/silver they can spend.

I believe each nation state will have a form of this, where any corp or person can buy gold using their local fiat currency, and this is then credited to their accounts on a blockchain. Kinesis may be the first iteration of this, or may be a private entity like a Visa/Mastercard someday that brokers retail and commercial to get into this system.

A kinesis then has the ability for you to sell it in a number of currencies and off ramp to your bank – or you can send this metal to a third party for whatever reason, OR you can use a debit card and spend it at Point of Sale.

Idea here is that I believe on a LARGE SCALE, this type of exchange is the future.

COMEX

I believe, for at least the next 5 years, the COMEX will still require USD to buy contracts, but I also believe that where this is going may then have the COMEX or other types of US exchanges as the last bastion of requiring USD to get in. I believe that most business will migrate FROM the COMEX to other exchanges that use this gold-backed model.

Meaning, the COMEX will die, or adapt.

And at that point, there’s no such thing as a “world reserve currency”.

This is the USD end game. It will still exist, but dollars will flood back here to buy things like gold, real estate, etc. The levels of inflation are going to be silly. And, it’s inevitable. It’s not imminent, but in the model I propose, it is most definitely inevitable.

BONDS

I believe bonds now will have the potential to go much higher in yields, IF this inflation is going to be imported back after so many years of USD currency creation. Fixed debt denominated in USD can be inflated out of, and paid off. Think about that impact as all of this M2 and international money created destroys the debt out there?

For people like me, my holdings in miners/metals/kinesis will inflate away all of my debt. I will have income bearing assets, that in a highly inflationary system will provide me good levels of income.

But bonds…how does the US continue?

Low interest bonds, gold-backed. This is not my idea, but that of Vince Lanci and Tom Luongo – and I think they heard it from others. NEW US debt could then use the gold as collateral, but remember – 3-5 years from now this inflation could be sick and gold at $10,000 suddenly can be used to create bonds against.

While this is a FORM of gold backing of debt, this can have an effect of inflating away trillions of trillions of dollars into long term dated bonds at low rates, payable in gold in 10-20-30 years. Nations would buy that, and take their USD sitting around and put that in to the US.

I believe this is the endgame for US Debt. Essentially, right now they are racking up high interest credit cards, and the endgame is to take an inflated asset they have, and collateralize it to refinance all of their debt cheaply. This solves their $32T problem.

To me – THIS is how gold fits in the system. The US will continue to use fiat and run up the credit card all they can, but the endgame here I believe is to ALLOW gold to run hot, then suck up all USD to pay off debts by using their gold to pay it off. This also sounds very much like what the European endgame is with their gold holdings.

So – what do you think? Gold-based COMMODITIES exchanges?