Gold and fiat: The last moves in the monetary game
As each week passes, you can sense that the demise of the fiat currency system is upon us.
The central bankers have lost their narrative about controlling inflation. Monetary policy, price controls, and regulations have failed.
I believe you’re now witnessing this financial system meet its demise in the hands of its archenemy, gold.
Two months ago, gold demonstrated itself as the undisputed safe-haven asset when the Russia-Ukraine conflict broke out. Literally every asset class declined sharply. Gold stood its ground firmly.
At the end of March, the Russian central bank announced its strategy to strengthen the ruble by fixing its exchange rate to gold.
You may recall that I was quite excited about this news, as were many in the gold community. After all, this was gold firing a shot against the fiat currency system and hitting the mark.
But to win this monetary war is not simply a matter of one or two shots. The fiat currency system is a more powerful beast than that. And one wrong move could allow this beast to undo all the hard work to get to where we are now.
The rhyme of the past and present
You should know that those who run this financial system don’t take lightly to anyone that tries to threaten its interests. This means going against their wishes to solely use fiat currencies as the means of exchange. They have a lot of tools at their disposal to keep everyone in line, with dire consequences for those who defy.
Just ask Iraq’s Saddam Hussein and Libya’s Muammar Gaddafi. Their demise came as they dared to seek to use alternative means to sell their oil. Iraq and Libya fell to Western nations running ‘peacekeeping missions’ and ‘military interventions’.
The media machine justified these invasions by telling the world how these two leaders brutalised their citizens, stockpiled dangerous and illegal weapons, and supported terrorist organisations that created fear in our neighbourhoods. So it was our duty to send forces to remove these dictators.
We have come to realise over time that the invasions of Iraq and Libya were based on the media setting up false premises and broadcasting it to the public (where were the weapons of mass destruction that Saddam Hussein had stockpiled in Iraq?).
But this is nothing new to us. Moreover, the developments in recent months have only highlighted this further.
Just think about the recent revelations regarding the Hunter Biden laptop and how Hillary Clinton spied on President Trump in 2016 then smeared him as a Russian spy using a complex web involving intelligence agencies, partisan law, PR firms, and the mainstream media that would mutually confirm each other’s information sources to report it as if it was the truth.
And, of course, day after day, you will see footage and news commentary about how Russian forces are committing atrocities against the innocent and courageous Ukrainians who are resisting their invaders.
It’s the same playbook.
Mind you, there’s some truth in the reports of atrocities. I believe in a war, both sides will use heavy-handed and underhanded tactics to secure victory.
Invariably the biggest victims are the citizens…
…and the truth.
Lessons from the past
Now, there’s an angle in this monetary war between gold and fiat currency that many have been overlooked. It’s about the latest moves by the Russian central bank to ease the peg of the ruble to gold to a more flexible arrangement.
Two weeks ago, the Russian central bank announced that it would move to buy gold at a negotiated price from local banks and producers. This happened because the ruble had strengthened substantially. Therefore, there was no need to buy gold at a significant discount.
This was one reason. I suspect there’s another.
It has to do with game theory.
You need to go back to the 1990s and recall how renowned globalist George Soros used his hedge funds to launch a raid on the Bank of England and almost collapse the sterling pound, as well as the Asian Financial Crisis in 1997–98 when several ‘tiger economies’ (i.e. South Korea and Thailand) faced an assault from hedge funds that successfully toppled their currencies.
The reason these currencies attracted the attention of these hedge funds was that these countries had pegged their currencies. Doing so would have offered some stability in the country’s economy. Policymakers, institutions, and individuals would conduct their activities around the targeted exchange rate. However, this stability is also a vulnerability. Take out the target and the economy spirals out of control.
And these countries experienced it.
I suspect that Russia has learnt from the past and knew that it was dangerous to peg the ruble to gold, especially since gold is still a commodity that traders can manipulate. Buying gold at a negotiated rate creates some flexibility and may prevent hedge funds from coordinating raids that can weaken the Russian economy.
Therefore, it appears that Russia has fortified its economy using gold, rather than a fiat currency.
Exploit the opportunities in gold!
You should see that gold has clearly taken the unassailable position in our financial system now. It’s both a safe-haven asset and an anchor of value.
Sooner rather than later, gold will decouple from the US dollar (and perhaps other currencies, too), and the price of gold will take off as it did back in the late 1970s.
How could you position yourself to gain from this?
You can buy gold coins and bars. That is a safe option.
Another is to look for leveraged plays on the gold rally to try and earn spectacular profits.
But it’s no simple task choosing the winners.
There is a way to do it, and I would be glad to show you.
Editor, The Daily Reckoning Australia
PS: Due to the ANZAC Day public holiday, there will be no Monday edition of The Daily Reckoning Australia. We hope you enjoy the long weekend with friends and family.