GOLD REVALUATION COMING SOON?

Many events are about to occur as we move toward the fall election. As believers we must prepare for social unrest beginning now. Below is the possibility of gold being revalued to a much higher price as the dollar begins to collapse in value.

How Central Banks Might Revalue the Price of Gold

1. Gold Revaluation Mechanism: Central banks have the power to revalue gold because they hold significant reserves and can directly impact its price through coordinated policies. Here’s how it might work:
   • Coordinated Buying or Selling: Central banks can collaborate to purchase or sell gold in the open market. By significantly increasing demand through coordinated buying, they could drive up the price. Conversely, selling gold could decrease its price, although central banks are more likely to use buying as a tool to increase gold’s value.
   • Setting a Fixed Price: Central banks could announce a new fixed price for gold, signaling their intention to buy or sell gold at that price to maintain it. This method was used during the Bretton Woods system, where the U.S. dollar was pegged to gold at $35 per ounce, and other currencies were pegged to the dollar.
   • Adjusting Reserve Requirements: Central banks could require higher reserves of gold relative to other assets, forcing banks and financial institutions to hold more gold. This would naturally increase demand and push the price upward.
   • Creating a Gold-Backed Digital Currency: Central banks might introduce a digital currency partially backed by gold. The announcement or launch of such a currency would increase demand for gold as a reserve asset, driving up its value.
2. Reasons for Revaluation: Central banks might consider revaluing gold for several reasons:
   • Stabilizing Currencies: In times of fiat currency instability, revaluing gold could help anchor the value of currencies by increasing confidence in gold-backed reserves.
   • Combatting Inflation: Revaluing gold could act as a tool against inflation by providing a hard asset alternative, reducing the money supply’s velocity, and curbing inflationary pressures.
   • Geopolitical Shifts: In a scenario where the U.S. dollar’s dominance is challenged, countries might seek to revalue gold as a neutral reserve asset to reduce dependency on the dollar.

Likelihood of Central Banks Revaluing Gold

First Principles Analysis: To determine the likelihood of central banks working together to revalue gold, let’s break down the problem using first principles:

1. Observation 1: Current Gold Holdings and Trends:
   • Many central banks, especially in emerging markets (e.g., China, Russia, India), have been increasing their gold reserves over the past decade. They are diversifying away from U.S. dollar-denominated assets due to geopolitical tensions and concerns about the dollar’s long-term stability.
   • According to the World Gold Council, central banks purchased a significant amount of gold in 2022 and 2023, highlighting a trend toward greater gold accumulation.
2. Observation 2: Potential Motivations for Revaluation:
   • Currency Stability and Inflation Control: With inflation concerns persisting globally, central banks might look for ways to strengthen their currencies. Revaluing gold could serve as a hedge against inflation.
   • Geopolitical Realignments: Rising geopolitical tensions, such as the U.S.-China trade war and Russia’s exclusion from the Western financial system, suggest a search for alternatives to the U.S. dollar. Gold, being a neutral asset, could be a strategic choice.
3. Observation 3: Current Economic Conditions and Constraints:
   • The global economic environment shows significant volatility, with rising inflation, concerns about debt sustainability, and shifts in global power structures.
   • Fiat Currency Defensiveness: Central banks of major economies (e.g., the Federal Reserve, European Central Bank) might resist actions that could undermine confidence in fiat currencies. A move to revalue gold significantly might indicate a loss of control over fiat systems, something major powers would be reluctant to signal.
4. Challenges to Coordinated Revaluation:
   • Coordination Complexity: Coordinating among the world’s major central banks (such as the Federal Reserve, ECB, PBOC, and Bank of Russia) would be highly complex, considering divergent economic interests and geopolitical dynamics.
   • Market Reaction and Trust Issues: Sudden revaluation could lead to significant market volatility, impacting bonds, equities, and currencies, potentially causing unintended consequences that might hurt the economies involved.
   • Gold Market Dynamics: The global gold market is influenced by more than just central banks—mining output, jewelry demand, and private investment also play substantial roles. Central banks do not control the entire market, making coordinated action less effective.

Real-World Evidence and Indicators

• Gold Accumulation by Central Banks: As mentioned, there has been a noticeable increase in gold reserves by countries like China, Russia, India, and Turkey. These countries are keen on reducing reliance on the U.S. dollar, which is a strong signal toward preferring a gold standard or using gold as a hedge.
• Digital Currencies and Gold-Backed Tokens: There has been interest from countries like Russia and China in exploring digital currencies, potentially backed by gold. This would serve as a hedge against sanctions and currency devaluation, indirectly affecting gold’s value.
• Current Geopolitical Instability: The rising U.S.-China tensions, sanctions against Russia, and the de-dollarization trend could accelerate the need for a more neutral reserve asset like gold. However, outright revaluation requires a more coordinated effort, which seems challenging given the fractured geopolitical environment.

Conclusion: Likelihood Assessment

Based on first principles thinking and real-world evidence:

• Short-term Likelihood: Low. While there is a strong case for revaluing gold, especially among countries looking to diversify from the U.S. dollar, the likelihood of a coordinated effort among major central banks remains low. The complexity of coordination, resistance from major fiat currency holders, and the potential for destabilizing markets make it an unlikely near-term scenario.
• Medium to Long-term Likelihood: Moderate to High. If current trends of de-dollarization continue, geopolitical tensions rise, or inflation remains persistently high, the incentive for central banks to explore a partial or full gold revaluation could increase. This scenario would require new financial crises or significant geopolitical shifts to become a reality.

In essence, while the groundwork for a potential revaluation is being laid in a fragmented way by some central banks, the prospect of a unified, coordinated revaluation is remote in the current global context. However, watch for changes in global economic stability, inflationary trends, and geopolitical dynamics as key indicators of a shift toward gold revaluation in the future.