The Answer Should Concern You…
In today’s performance of The Ant and The Grasshopper, the role of the Ant will be played by the Czech National Bank.
Just recently, I saw a news item here in Prague that the incoming governor of the Czech National Bank, a guy named Aleš Michl, has announced a plan to increase the Czech Republic’s gold horde to 100 tons or more, up from 11 tons today—basically a 10x increase.
Michl is to the Czech National Bank what Jerome Powell is to the Federal Reserve—the toppest of top dog. So if he says, “Hey, we’re loading up on gold,” you kinda wanna stop and at least consider his rationale.
And Michl’s rationale is simple: Gold ain’t tied to the U.S. dollar.
The trend of countries (other than the U.S.) adding to their gold holdings has been going on for several years now. My adopted homeland’s move is just the latest example of this.
In the last couple of years, Brazil added more than 62 tons. Egypt 44 tons. Hungary 63 tons. India more than 120 tons. Japan nearly 81 tons. Singapore 26 tons. Thailand 90 tons…you get the picture.
There is a question I always have when I see these kinds of numbers: Why is it that people inside the Federal Reserve and the Treasury Department always dump on gold as archaic and a non-important asset?
But why, then, do central banks all over the world keep buying gold? Why do European countries combined own more than 15,000 tons of gold?
I mean, is the Federal Reserve so much more progressive in its thinking that it’s playing four-dimensional chess while the rest of the world’s central bankers are still trying to figure out Chutes & Ladders?
Before you answer that, I wish to remind you that the Federal Reserve said inflation was transitory and that the housing collapse of 2007 was contained and would not spill over into the broader economy.
As for the Czech Republic…it’s part of a pact known as the Visegrad Group with Hungary, Poland, and Slovakia.
Since 2018, Hungary has increased its gold holdings to nearly 95 tons from just over 3 tons. Poland made news in 2019 when it snapped up nearly 126 tons and had 100 of those tons shipped directly to Warsaw from London in eight, special cargo flights.
When Hungary made its last large purchase, the 63 tons of gold last year, the country’s central bank explained its rational by noting that: Gold “carries no credit or counterparty risks, [it] reinforces trust in a country in all economic environments, which still renders it one of the most crucial reserve assets worldwide,” and that “the appearance of global spikes in government debts or inflation concerns further increase the importance of gold in national strategy as a safe-haven asset and as a store of value.”
Lots of modern thinkers disagree with that.
So be it.
Bothers me not that they will be proven wrong. That’s what makes every single market in the world: Those of us who are right taking one side of the trade, and those other people who are wrong on the other side.
I’m happily in the camp with the Visegrad central bankers.
Simply put: They’re right. Gold is the safe-haven, store-of-value asset you need right now.
The naysayers say gold is a risk asset, not a store of value, because it bounces around in price relative to a stable dollar.
But what if the reverse is actually true?
One could rightly argue that the dollar is the risk asset bouncing around in price relative to gold. That’s the way I view it, which is why so much of my primary retirement account (about 20%) is in physical gold and one particular gold miner.
And it’s why so many countries are shoveling gold into their national reserves these days.
They’re rightly worried about the crises to come.
I see them too. They’re not hidden.
- Way too much American (and Western) debt at the corporate, government, and consumer level. Politicians who continually add to the debt, assuming future politicians will deal with it.
- Way too much money that has been dumped into Western economies that is, in turn, fueling inflation.
- Inflation that has permanently reset prices higher and which will cause long-term pain for consumers.
Ultimately, inflation will force salaries higher, but that will only serve to exacerbate inflation later this decade…which will force the Fed to aggressively hike interest rates that, then, either foments a debt crisis for the government or forces government to radically increase the money supply to cover rising debt payments…which destroys the value of the dollar…
Any or all or some of those are plainly predictable.
So, I guess what I’m saying this: Channel your inner Czech central banker. Boost your gold holdings over the next couple years.