GOLD’S BULL MARKET ISN’T OVER 151or a commodity, and started behaving like what it has always
been — money.
Late 2014 was a period when commodities generally
declined because of deflation, and currencies generally fell
against the dollar as part of the currency wars. The declining
currencies were also a symptom of deflation because currency
devaluation is a way to import inflation from trading partners
in order to stave off domestic deflation.
Only three major assets went up strongly in the past six
months: U.S. dollars, Swiss francs and gold. The dollar/gold
correlation was most striking because they had been inverse-
ly correlated since 2011 with the dollar getting stronger, and
gold getting weaker. Suddenly gold and dollars were gaining
strength together against commodities, euros, yen, Yuan and
most other measures of wealth.
Using our causal inference models, our tentative conclu-
sion is that gold is behaving like money again. This could be an
early warning of a breakdown in the international monetary
system as a result of persistent deflation and currency wars.
Investors were moving to safe havens, and dollars, gold, and
Swiss francs are at the top of the list.
However, our intelligence collections and inferential mod-
els suggest that something even more profound may be going
on. Russian and Chinese gold acquisition programs have been
going on for years; that story is well known to our readers.
But those acquisitions have now passed the point that
Russia and China need to have a seat at the table in any new in-
ternational monetary conference. Both countries have caught
up to the U.S. in terms of the all-important Gold-to-GDP ratio.
Yet massive gold acquisitions by Russia and China continue.
Can something else be going on?
At a minimum, Russia and China are using gold to hedge
the dollar value of their primary assets. In the case of China,
those assets consist of $3 trillion of U.S. Treasury and other