It’s tough to come up with holes in the gold bull right now. Before I get into some truly impressive news items about gold, I do want to always emphasize that all bull markets experience retracements and corrections. Every single one.
If you had a crystal ball, you would write down the dates when gold and gold stocks were going to dip, so you could buy more at lower prices. You would at the very least want to tell yourself to ignore the downturns – and certainly to avoid dumping shares at any correction during the bull…
All of that to say: the news for gold almost can’t get any better. And if the news can’t get any better, it’s likely to get worse, even if the long term trend is extremely strong.
Any minor piece of bad news or a slowdown in central bank gold purchasing or some other hiccup could mute gold prices.
In the meantime…
The hits keep coming.
Of course the very real threat of war with Iran is creating waves of uncertainty. Domestically, as I wrote on Friday, President Trump is also laying siege to the Federal Reserve. In response, some of America’s strongest allies are bristling to repatriate their gold out of the NY Fed vaults.
As the Financial Times reported earlier today, Germany and Italy are now facing calls to bring their gold home. These two countries hold the 2nd and 3rd most gold after the US. Between the two of them, they hold over $245 billion worth of gold in US vaults, according to the Financial Times.
The repatriation of gold might not seem like a big deal (it is after all, just moving gold from one location to another) but it can cause waves in the gold markets. That’s because most gold held outside of government vaults (and even some inside) is not allocated. That means that there are frequently duplicate claims on some gold – and when people demand delivery, it can cause a cascade of horse trading and open market gold purchasing to meet physical demand.
There’s also the nagging question about whether maybe the gold in US vaults is not all there, either.
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This kind of uncertainty across multiple fronts explains why we’ve seen record gold buying from Central Banks – to the point that now it’s the #2 reserve asset for central banks, nudging the Euro to 3rd place.
Gold now makes up about 20% of global central bank assets, while the Euro has fallen to just 16%.
We’ve also seen a massive run up in gold prices coincide with a total massacre in the US Treasury market, to the point that the ratio between Treasury Securities and gold prices is at an all time low.
That means it takes more Treasuries to buy an ounce of gold than ever before.
And it’s likely to get worse because there’s a full tilt effort from the Trump administration to devalue the dollar. He’s desperately calling for lower rates and wants to weaken the dollar internationally so that American exports will be more competitive.
A weaker dollar typically means a higher gold price. A lower real rate of return on Treasuries also tends to boost gold prices.
On that front, the BRICS (Brazil, Russia, India, China and South Africa) are meeting in Rio de Janeiro in early July to discuss global governance and economic cooperation. But gold analyst Peter Reagan of the Birch Gold Group believes the real reason for the meeting is to discuss how these countries will continue to decouple and deleverage from the dollar.
Reagan calls the meeting “the Rio Reset.”
As he says, "The Rio Reset represents a critical juncture in international finance. After ten plus years of financial and economic engineering, I'm convinced BRICS will make history this summer."
Brazilian President Lula da Silva recently said, "Every night I ask myself why all countries have to base their trade on the dollar. Who was it that decided that the dollar was the currency after the disappearance of the gold standard?"
It seems like no one wants to be long the dollar right now. A Tweet from ZeroHedge earlier this month suggested that the world’s largest investment banks are short the dollar
It might be that a decade or two from now, we look back at the experiment of dollar hegemony from 1971-2025 as a very odd and mass delusion. Why did we let it happen?
Who would want to hold dollars instead of gold?
It’s a question that might not have an answer.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio