Folly of Western Governments

EG: Why do Western nations ignore economic history as gold hemhorrhages out of our bank vaults while the East follow the wisest people in the room, viewing cheap prices as a subsidy to quietly accumulate real wealth? 

AS: The central banks' demand for physical gold is shaking up the traditional price-setting system dominated by Western institutional investors and commercial banks. The flow of gold from West to East represents a significant wealth transfer, and underestimating its importance is a major oversight.
 

Globally, there's a growing recognition of gold's value, reflected in its share of international reserves reaching 17.6% in 2023—the highest in 27 years. This share has nearly doubled since 2016 as central banks have significantly increased their gold purchases. Now, gold is the second-largest asset in global central banks’ reserves, surpassing the Euro for the first time. The US dollar remains the top asset, but its global share has dropped from about 60% in 2017 to 48%.
 

In Q1 2024, central banks' net gold purchases hit a record 290 tonnes. Official world gold reserves have climbed to 1,170 million fine troy ounces, a level not seen since before President Richard Nixon ended the US Dollar's gold link in 1971. It's almost as if the central banks are preparing for a gold standard.
 

A recent Financial Times article notes that while central banks report gold acquisitions to the IMF, the actual buying—especially by China and Russia—may be much higher than officially reported. For instance, the Reserve Bank of India bought 24 tonnes of gold in the first four months of 2024, surpassing by 150% its total purchases for all of 2023.
 

India has also imported nearly 600 million ounces of silver in the past 2.5 years, with Q1 2024 imports exceeding those of all 2023. This surge in gold and silver purchases highlights a broader trend of repatriating and mitigating counter-party risks.
 

The Reserve Bank of India recently moved over 100 tonnes of its gold reserves from the UK to India, holding most of its gold domestically for the first time since 1991. Several African and Middle Eastern nations, including Nigeria, South Africa, Ghana, Senegal, Cameroon, Algeria, Egypt, and Saudi Arabia, have also started withdrawing their gold reserves from the US. Saudi Arabia, as a major oil exporter, is particularly notable for its actions, signalling a growing dissatisfaction with the US financial system and raising questions about the US dollar's future as the primary reserve currency.
 

Adding to this shift, the average daily trading volume on the Shanghai Gold Exchange and the Shanghai Futures Exchange has more than doubled in recent months, surpassing the New York COMEX. Shanghai is now the world’s second-largest gold trading market after the London Bullion Market Association. Can you see the trend?

EG: You stated that everything that makes you feel 'wealthy' in the Western world is inversely correlated to a rise in interest rates. If interest rates go parabolic when the banks lose control, what does the world look like for asset prices, capital markets and U.S. Treasuries? 
 

AS: Our economy has been built on shaky foundations of debt-fuelled spending and artificially low interest rates. Consequently, financial assets have been artificially propped up for decades, distorting the process of price discovery. These systemically intertwined assets are inversely valued to a potential massive spike in rates within an undercapitalised and overleveraged system. The fallout would be far-reaching and catastrophic.

 

If rates rose significantly, most major U.S. banks would fail, the U.S. government would be forced to default on Treasuries, financial markets would crash, unemployment would soar, and the economy would collapse.

 

The dollar is being weaponised against other nations while being inflated away by increasingly irresponsible deficit spending, expanding taxpayer-funded entitlements, and a continuous string of wars. As a result, governments that have long been our creditors by accumulating U.S. government bonds have begun selling them. This ultimately pushes up interest rates even more, leading to a debt spiral—a financial death spiral that cannot be fixed.

It is time to wake up. Our economy is being propped up by fake "money," and asset prices are so far removed from actual value that the next correction will likely be one talked about for a century. The forty-year trend of declining interest rates has ended, replaced by a new rising trend whose full consequences and duration are yet unknown.
 

EG: Jim Sinclair stated that 'physical gold is for savings, fiat is for spending'. Why do Governments and Central banks desire to eradicate wealth accumulation by introducing Central Bank Digital Currencies (CBDCs), knowing full well about the value of gold? 
 

AS: Central banks are buying all the gold while Central Bank Digital Currencies (CBDCs) are designed to control the masses by controlling the money and its accessibility.
 

EG: This is quite evident as central banks embark on their biggest gold buying spree in world history. Would you say this action itself merely represents a damning indictment and admission of foolhardy debt monetisation and fiscal policy? 
 

AS: Central banks around the world have set a new record for net gold purchases in Q1 2024, surpassing the previous high of 286 tonnes from Q1 2023. Historically, using government bonds as a savings vehicle is a relatively recent idea. As this trend fades, people are likely to turn back to gold as the ultimate store of value. We're already seeing this shift in a big way. Last year, central banks bought about 37 million ounces of gold—a record not seen in decades and double the average annual purchases from 2010 to 2021. Interestingly, this surge in gold buying coincided with the worst year ever for US Treasuries, highlighting a clear trend.
 

However, it's tough to pinpoint exactly which central banks are buying gold and how much they're buying, because many of these transactions occur in the opaque over-the-counter market. While central banks report their gold purchases to the IMF, a recent Financial Times article suggests that actual buying, especially by China and Russia, far exceeds the reported figures.
 

Geopolitical concerns, rising U.S. debt, and the weaponisation of the SWIFT system and treasury markets are all pushing central banks in the Global South to diversify away from the dollar. This trend indicates a significant shift in the global financial landscape.

   

EG: What is the risk to retirees if the United States were to default on obligations and world stock markets crashed, and how would this impact those who have 401Ks, IRAs and SIPP pension products linked to gold? 

AS: Speculative as they may be, the "what if" questions become more urgent if markets collapse due to government default and global financial turmoil, locking people out of their digital assets. In such a scenario, motivations swiftly shift. Contrarianism and preparation, once dismissed as paranoia, become essential lifelines for those who trusted their instincts and made provisions for the worst-case scenario.
 

Owning precious metals outright provides immunity from asset freezes or lockouts. While metals held in IRAs must be stored in depositories, they offer the option to take physical possession upon demand, albeit triggering taxable events.
 

Gold and silver represent pure wealth without counter-party liability. Throughout history, all fiat currencies have depreciated until they're rendered worthless, a lesson often overlooked by critics of gold. Gold and silver have outlasted every fiat currency ever issued. Ignoring history leads to repeating its mistakes, and those who hold savings in dollars may find themselves destitute.

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EG: Alan Greenspan stated that gold 'has never required the credit guarantee of a third party.' Why may the term 'counter-party risk' become a thorn in the side for Keynesian economists and what future do you see for banking institutions in 10-15 years? 

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AS: I hold gold because it's bankruptcy-proof and maintains a consistent market demand. History unequivocally shows that all fiat currencies eventually become worthless. Gold, however, boasts a 5,000-year track record as real money. No fiat currency has lasted more than a century, with many collapsing within 40-50 years. Nixon's closure of the gold window over 53 years ago marked the dollar's shift to complete fiat status. Just last week, on the 50th anniversary of the Kissinger-negotiated Petro-dollar agreement with Saudi Arabia, the Saudis chose not to renew the deal. As Bob Dylan aptly put it, "The times they are a-changing."

 

Fiat currency is essentially "fool's money," deriving its value solely from government decree. It's debt-based and relies entirely on confidence. Gold stands apart as a currency backed by intrinsic wealth, devoid of debt and counter-party risk.

 

During the pandemic, the Fed reduced the bank reserve requirement ratio to 0%, meaning banks aren't mandated to hold any reserves against deposits. Essentially, any money deposited in banks legally becomes an unsecured loan to them. While this move aimed to stimulate the economy, the 0% reserve ratio has persisted since late March 2020. This leaves banks increasingly overleveraged and worryingly undercapitalised. It's not hard to imagine that any significant rise in interest rates could severely disrupt an already fragile banking system.
 

EG: Saving the middle class from complete economic catastrophe and financial chaos in Weimar Germany could have prevented a despot from arising to power. Explain why it is so important for the masses to immediately begin investing and trading in precious metals? 
 

AS: The gap between the haves and the have-nots has never been wider, while the middle class is being wiped out. What remains of the middle class is deeply in debt—student debt, credit card debt, car loans, and mortgage debt. We are witnessing the expanding erosion of the middle class.
 

Fifty-five percent of adults aged 18-30 are living at home with their parents. According to the Social Security Administration, more than 30 percent of all American workers made less than $20,000 last year. More than 41 percent made less than $30,000, over 52 percent made less than $40,000, and more than 62 percent made less than $50,000. At one time, America had the largest and most prosperous middle class in history. But now, currency inflation and higher taxes are driving the middle class to extinction. Personally, I believe in owning hard assets because they are tangible and not someone else’s promise to repay me. Without a plan, you will likely be a victim and at the mercy of the government.
 

EG: Tell us about why world industrial demand for silver could mean explosive growth potential and an exciting opportunity for prudent investors? 

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AS: Blackrock Silver and 19 other executives from the silver industry have penned an open letter urging the Canadian government to recognise silver not merely as an industrial metal, but as a critical mineral. They highlight silver's expanding uses amid its dwindling natural supply. A recent TD Securities article reports that the LBMA is facing a surge in demand, potentially leading to depletion of silver stockpiles within two years. This comes as total silver mine production hits its second lowest point in a decade while industrial demand reaches record highs. Industrial users are now in a race to draw down major silver inventories, competing against central banks, commercial banks, and large hedge funds.

 

In April, stockpiles tracked by the London Bullion Market Association hit their second lowest level on record, while volumes on exchanges in New York and Shanghai remain low, but see rising off-exchange deliveries. As inventories tighten and awareness grows that industrial and investor demand are in fierce competition with well-funded traders, silver's price potential appears higher than expected. For instance, India has imported over 600 million ounces of silver in the past two and a half years—more than ten times the amount currently in the Comex registered category and double the entire Comex stockpiles.

 

It's essential to note the lack of true price discovery in silver, largely due to evident COMEX and LBMA manipulation. While a detailed discussion on this manipulation warrants its own space, it's worth noting that markets can only be manipulated for so long before reality asserts itself. The silver market appears to be shifting towards physical possession, challenging the wisdom of extensive naked shorting and re-hypothecated synthetic silver.

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EG: What would be your five point plan to save the U.S. economy, ensuring a prosperous future for generations to come? 
 

AS: We should close many of the 700+ military bases worldwide and redirect the personnel and savings to rebuild our crumbling infrastructure. Stop giving money to countries worldwide and end our involvement in unnecessary wars. Lower taxes, remove industrial restrictions, and tap into our domestic energy sources. Prioritise merit-based free market capitalism over identity politics, we need to get our fiscal house in order, now!
 

You know, history teaches us that overspending leads to loss of power and authority, posing a serious national security threat. That's why gold and silver are crucial today. The USA used to stand for freedom and fairness, but now? We're struggling, dealing with rule of law issues, political chaos, and reckless money printing. Our $34 trillion debt is alarming, with interest payments outpacing almost everything else in the budget. Imagine if we redirected funds from wars and illegal immigration to fix our own infrastructure. How will we ever tackle a $35 trillion debt and over $200 trillion in unfunded promises?
 

"What's the value of a promise if it's never kept?" Debt keeps piling up everywhere, from national to personal levels. I can personally think of almost 300 trillion reasons to invest in gold and silver.

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EG: Communism has wrecked havoc upon humanity. Your success story likely wouldn't have been achievable in Communist China or Soviet Russia. What do we do to ensure American ideals like freedom, liberty and capitalism permanently remain at the forefront of world power? 

AS: Teach and embrace American ideals: that all people are created equal and have fundamental rights such as liberty, free speech, freedom of religion, due process of law, and equal opportunity. Foster individual responsibility, democracy, and free market capitalism. Overhaul Washington to restore limited government with a clear separation of powers and real checks and balances, putting Americans and American ideals first—just like it used to be.   EG