The Bizarre Policy Decision That Killed the Dollar

68% of the World’s Central Banks Are Doing This…

The Age of Economic Arrogance has settled in, and that’s not gonna be a good thing for me, you, or America, writ large. 

It will, however, be fantastic for an investment that starts with G and rhymes with “hold.” 

That’s my takeaway from the new Global Sovereign Asset Management Study just released by investment-funds giant Invesco. For Field Notes and Global Intelligence Letter readers, the findings won’t shock you. 

The study found that 68% of the world’s central banks and sovereign-wealth funds are now storing their physical gold holdings at home. Moreover, 74% plan to do so within five years. In 2020, that percentage was only 50%. 

To be clear, this is not a small sampling. Invesco polled 85 sovereign-wealth funds and 57 central banks that, combined, manage a collective $21 trillion in assets. That’s nearly the size of the entire U.S. economy. 

The rationale behind these moves, though, is really my point today. 

One of the anonymous responses in the study from a central banker perfectly sums up the concern that’s now endemic in the sovereign financial world: “We did have (gold) held in London… but now we’ve transferred it back to [our] own country to hold as a safe haven asset and to keep it safe.” And in this case, “keeping it safe” explicitly means keeping the United States from exerting its will on other countries. 

In recent years, Uncle Sam has been using the dollar as a weapon of economic destruction on a global scale. He has imposed various asset freezes on countries and has denied access to services that allow foreign banks to clear trades in dollars, since all those trades, by design, transit New York City. 

Now, some of these moves have been justifiable on an individual level. It’s understandable to want to punish Russia for its invasion of Ukraine, or Iran for its nuclear program. But once you take these steps, you create a new policy that every nation needs to worry about and plan for…  

It’s sort of like operating the only freeway in the world, and for decades the entire world had unfettered access to the freeway. So, there was no reason for anyone else to build a competing freeway. But suddenly the freeway owner says, “You know what? I don’t like the color of your car. And since you won’t change it, I’m gonna ban you from my freeway!” 

Rightly, countries are not only furious, but they’re also saying, “I don’t trust you anymore, you back-stabbed us!” And, so, we see this new trend Invesco has highlighted. 

Those bankers and wealth-fund managers are telling Invesco that gold is so much more attractive now than dollars because America has no control over gold prices, or the global gold market. Countries can trade gold among themselves, if need be. 

This is bad, bad news. 

America is increasingly alienating the buyers it deeply needs to consume the unimaginably massive quantities of debt Uncle Sam must sell every few weeks, lest he literally run out of money. 

That plays through as an ever-weaker dollar. Which means elevated inflation. Which reduces standards of living in America. 

Invesco’s study also tells you that, despite gold’s naysayers, the metal still remains the quintessential safety asset thousands of years after claiming that role. 

I say this all the time, and I realize how repetitive this sounds, but if you don’t own a decent slug of gold in your portfolio, it’s like living in Miami Beach without hurricane and flood insurance. You know it’s only a matter of time before disaster strikes. And if you’re ill-prepared, your financial life is going to be a disaster. 

Governments don’t make these decisions lightly. They don’t load up on gold because they’re speculating on future prices. And they don’t load up on gold because they have loads of money lying around and don’t know what to do with it. It’s not like they ever run out of streets and hospitals to build. 

Gold is their insurance policy. They (well, other than the U.S.) are long-term planners. They assess the global winds and adjust their sails to prep for the coming storm. 

We’d all be wise to pay attention to what central banks and sovereign-wealth funds are doing today. 

I’ve added more gold to one of my retirement accounts because I don’t trust where the U.S. is steering the world.  

I trust other governments that are saying problems are afoot. 

They’re sending a message. 

Question is: Who’s listening?