Let’s Hear From Another Close Follower of Gold!

An earlier Republic Monetary Exchange blog post made the point that gold has been hit often in crises with a “dash for cash.” This war is just such a crisis, although it is much bigger than most.

Bill Bonner

Such scrambles for liquidity can push the price of gold down, typically not for long. Gold’s buoyancy quickly reassert itself, to the advantage of those who understand why gold is the world’s most enduring form of money. But instead of repeating ourselves, we thought we’d turn to another long-time gold observer.

Bill Bonner is a bestselling author and is synonymous with the investment newsletter The Daily Reckoning, which he launched many years ago. We read it regularly and have for years. Because we are also subscribers to his private Substack letter Bonner Private Research, we are taking the liberty of posting some of his views on today’s gold market.

This is what seems to have happened, triggered by a near-panic in the Near East. The Gulf states, with their vast deposits of oil-business assets, suddenly saw earnings dry up. The closing of the Strait of Hormuz left them with their oil…but no way to trade it for dollars. Short of cashflow, they sold their most liquid asset, gold.

The price of gold goes up and down. But it’s almost incidental. We count our wealth in ounces of gold, not dollars. So, a drop in the gold price has only a brief, notional effect on us.

We’re talking about real gold, not ‘paper gold.’ Real gold is physical. You can hold it in your hand or bury it in your back yard. Paper gold is a contract given to you by someone who claims to have gold…or access to it…at a certain price, of course.

The glory of real gold is that it has no counterparty risk. Others can go belly up; you still have your gold. But ‘paper gold’ is different. If the counterparty can’t make good on his promise, your ‘gold’ can disappear.

‘Paper gold’ is a speculation. That is most of what is selling off now. People are still holding their real gold…and so are we.

That is similar to our own view. As we have described, in a crisis brokers and hedge funds facing mounting redemptions and margin calls turn the superior liquidity of gold to bridge the crisis, only to reestablish their positions as quickly as feasible. Now we know that regional player Türkiye turned to gold to meet their “redemption” currency crisis.

These opportunities don’t often last long. Certainly not with fuel and food ready to skyrocket price inflation. That means it may be a fleeting opportunity to accumulate precious metals.

See my team at Republic Monetary Exchange.