Jim Rickards Describes Increased Global Interest in Blockchain and Gold instead of the Dollar

Alex Stanczyk interviews Jim Rickards in the June 2018 edition of Gold Chronicles.  Rickards’s thesis is that the dollar is going to collapse.  I agree, but while it is easy to know that this will happen, it is hard to know when—whether in three years or 35 years. 

I am accumulating gold gradually and plan to have about 20% of my portfolio in gold and silver, although I’m at about eight percent now.  I’m not totally convinced that the downturn in the gold price from the 2011 peak--due to monetary expansion and the Trump stock market bubble--is over.

Rickards says that gold production has flatlined.  We all know that the “peak” thesis was wrong for oil, and I have little reason to believe that it will be right for gold.  However, production is not a determinative factor in the long run. 

Rickards claims that there is a new axis of gold formed by secondary and tertiary powers who are looking a way out of the dollar system, and they will hasten the invention of an alternative monetary system that will include both blockchain technology [but not Bitcoin] and gold.  Incidentally, I have purchased a small amount of Overstock.com, which has become a blockchain incubator.

Stanczyk says that gold is migrating from the West to the East, especially from London to Switzerland and then to China and India.  Gold reserves held in emerging market central banks increased 91% from 2006 to 2017.  The Russian central bank has purchased over 600 tons of gold over the past four years.  The Keynesian claims that gold is a “barbaric metal,” defunct, and meaningless with respect to monetary policy, seems to have escaped central bankers around the world.

          “The dollar is still boss,” Rickards says, but “Russia buys [gold] like clockwork.” Still,  remember that the price of oil collapsed a couple of years ago [and gold can still do the same].  The oil collapse hurt Russia’s economy. In the 2014-2016 period,  Russian dollar reserves declined by 40% due to the fall in the price of oil, but Rickards points out that the Russians did not stop buying gold even during this difficult period.  It’s like you buy $100 a month in gold, but then you lose your job. Even then, you still buy the gold. That’s conviction.

China is less transparent than Russia, according to Rickards. China has purchased 600 to two thousand tons; Turkey has acquired gold; Iran has acquired gold; Kazakhstan has been acquiring gold. From 1999 to 2010 central banks sold gold. [They apparently sold into the gold bull market.] Since then, the central banks have been buying gold.  The last time the US sold gold was 1980, despite the scoffing of foundation-funded academics.

The big sellers after 1980 were the UK, Switzerland, and the IMF. Germany, France, and Italy never sold.  The central banks that were selling have stopped. Now, on net, banks are buying.  Miners are having difficulty finding new gold. “What’s going on is strategic,” says Rickards.

The US dollar is currently more than 60% of global reserves, 80% of global payments, and 90% of oil payments.  The Establishment (Ben Bernanke, Tim Geithner, John Lipsky) sees continued dominance of the dollar.  Currently the US is in financial wars with Iran, Russia, North Korea, and possibly China. 

          The ubiquitous dollar enables the US to be effective at enforcing economic sanctions. The problem is that these countries, at the short end of US foreign policy and trade policy, are trying to get around the dollar system.  Russia, China, Iran, Turkey, Venezuela, and Brazil are looking for an alternative to the US dollar system.