Gold in wartime: down first, then up
During an ongoing conflict, gold usually falls at first. Everyone watches the simple rule: war on, gold down; war off, gold up. That holds early. The longer a conflict runs, a day comes when the rule flips to war on, gold up. That day matters. It is when people accept the fight will last a while, decide to do some business in yuan and some in dollars, and start turning any yuan surpluses they earn into gold. That moment marks a real shift.
Early gold weakness reflects a need for cash, not lost faith in the metal. Some central banks and holders sell gold to raise liquidity or buy energy. Turkey sold a large part of its gold holdings, likely to buy energy because of trouble in the Strait of Hormuz. Gold gets sold alongside Treasury bonds for the same reason. When Treasury markets seize up and the Fed or Treasury inject fresh dollars, yesterday's sellers turn into tomorrow's buyers. Gold has already fallen well off its highs, so a further small dip in a risk-off move is possible. Then gold soars again as falling stocks strain Treasury markets, forcing more dollar liquidity, and gold hits new all-time highs.
In dollars, equities trace a Nike swoosh: down, then a slow recovery. Measured in gold, the picture differs. Priced in gold, stocks have been correcting since 2022, and really since 2000, and that correction continues.
The economic divorce forces gold higher
A world war is possible but unlikely. What is coming is an economic divorce between China and the US. In that split, gold has to soar. China will not run deficits in yuan even if it could, and it won't. Instead, China has set up offshore yuan clearing banks in every major gold hub: London, Switzerland, Dubai, Singapore, Hong Kong, and Shanghai. If you run a surplus with China or hold extra yuan from trade, you can turn those yuan into gold at any of those places. That is how China plans to make the yuan a global currency. China has said this openly for 10 to 15 years. The West keeps ignoring it because it has no card to play against it.
If part of this trade war was meant to protect dollar dominance, it will do the opposite over the long run and speed up its end.
Silver: mispriced and a weak point
Silver is wildly mispriced as an industrial metal today. It also sits as a weak spot in the credit gold and credit silver system that props up the post-1971 dollar structure. "Credit" here means the unallocated gold and silver derivatives, paper claims on metal. When demand for gold or silver jumps, there are two ways to handle it: let the price rise and let real metal move, or expand paper claims and hold the price still. Over the past 50 years, the paper route has been the usual answer.
Physical silver holders should be rewarded over time. The world is now trying to build backups to the industrial base China has built, across the US, Japan, Korea, and maybe Europe on energy. None of that gets built with paper silver. Real metal has to be there. Silver is used in many places, especially anything electric, EVs, and solar panels. Paper claims can multiply without limit; real metal cannot be made with accounting entries. As for timing, the reward could come in two months, two years, or two decades. The best guess is within two years, held with low conviction.
Gold's return is already 12 years old
The fiat system will not vanish overnight. Real change happens in shades of gray. Gold has begun coming back as a neutral reserve asset, and that shift is at least 12 years old.
The proof is in reserves. Global dollar reserves have barely moved in 12 years. Treasury bond reserves have stayed flat for 12 years. Gold reserves have risen a lot. Central banks have been buying gold and not buying Treasuries, even while Treasury supply grew at an exponential pace. Central banks vote with their balance sheets while official speeches defend the current system.
The post-1971 dollar structure is ending, but the dollar itself is not ending, not in this lifetime, or a child's or grandchild's. It is changing into a system built around gold as a neutral reserve asset that floats against all currencies. Almost everyone wants this:
- In 2009 the People's Bank of China said it wanted a reserve asset that was not credit-based, was tied to a commodity, and was not issued by any single country. That is gold. China started buying gold much more aggressively a few years later. Declassified US State Department documents show China buys gold because it sees it as a way to hit two goals at once and build its own resilience.
- In 2011 the IMF said the world should move away from pricing oil only in dollars and instead price gold and oil in IMF SDRs. Dominique Strauss-Kahn, who ran the IMF when this was proposed, hit a sex scandal and was removed from office three months later.
- In 2010 World Bank head and former Treasury official Robert Zoellick called for a system spanning the euro, yuan, yen, pound, and dollar, with the yuan opening its capital account, and using gold as a reference point for inflation expectations and growth.
Hamiltonian economics needs a new monetary base
The US itself, the incumbent that controls the old system, is now talking about Hamiltonian economics. Four weeks ago Treasury Secretary Bessent gave a speech at the New York Economic Club and posted a Wall Street Journal op-ed the same day, saying Hamiltonian economics backs Trump's economic statecraft. US Trade Representative Jameson Greer said the same in January at Davos: done with the old system, the US is moving to a Hamiltonian economic system. Vance and Trump have hinted at it too.
You cannot run a Hamiltonian system on the post-1971 dollar structure. Full stop. Hamiltonian economics means tariffs and industrial policy. When you do those things, you stop pumping out the dollars the current system needs to run. So the world goes to gold. Bessent, widely called the adult in the room, is telling you gold is coming back into the system. That points to much higher gold prices and a much lower trade value of the dollar against creditor currencies like the yuan, the yen, and to a lesser degree the euro. Such a system could set off the greatest worldwide economic boom since the end of World War II.
Debt, entitlements, and revaluing gold
The debt is designed never to be paid off in full. At heart it is a currency problem. If the currency weakens enough against gold, the US can clear its debt overnight. At some high price per ounce, well above $20,000, the Treasury Secretary can order the Fed to revalue the gold, pay everything off with devalued dollars, and let debt holders lose while the government wins. The debt can always be floated. It is a political question.
The preferred playbook for 40 to 50 years has been slow financial repression. Since 2008 the debt has grown about 8% a year. Officials call inflation 3%, pay 0% to 2% on interest, and try to earn their way out. The catch: this needs some austerity on the back end. Keep spending 8% more every year and you never catch up. Governments rarely wipe out debt; they change the value of the currency that measures it. Savers holding only nominal assets watch their statements stay flat while their real wealth quietly shrinks.
Entitlements are not counted as debt until they move from off the books to on the books. That move is simply boomers turning 65. About 70 million boomers were born from 1946 to 1964, and most will reach 65, which was never a surprise. The reason debt growth has not slowed is that these off-balance-sheet liabilities came onto the balance sheet.
When politics breaks the playbook
Financial repression works until the politics get weird, and we are now years into that. Without financial repression, Trump never gets elected, and Obama probably does not either. Trump marks the first clear sign that the financial repression playbook is driving political trouble. The biggest threat is not the rising debt by itself. It is the political backlash when savers quietly pay the cost. Once voters reject the old playbook, policymakers get pushed toward options once thought impossible.
