Gold on the Gold Coast (Pt. 2): Start thinking of gold in yuan!

Gold’s edging up again today after a sharp fall earlier this month. It’s tacking on more than 1.5% today, last I checked.

Part of that bounce is likely increased nerves about the Iran war, with US–Israeli strikes hitting power and military infrastructure around Tehran in the last 24 hours.

And likely also the talk of a possible ground push on Iran’s Karg Island hanging over markets.

At the same time, the broader global market might be pondering a major rethink “inflation is done” narrative from the end of last year.

Outgoing US Federal Reserve Chair Jerome Powell recently said long-term inflation expectations are largely unmoved.

Ah yes, the central bankers and their prognostications.

Tell me more oh wise ones!

Which got me thinking today about gold again and what it means.

Defined by difference

One of the best ways to think about gold is by understanding what it’s not.

It’s not government money. It’s not a share in a company.

And it’s not a bond.

But it does bind people together in odd ways, particularly when there is a trust deficit in the world.

(As I discovered in a powerful way on my final day in the Gold Coast for a gold conference – more on that tomorrow!)

So what is gold?

I’ve always thought of gold as first and foremost – a technology of value.

Yes, “store of value” is the long-held view.

But technology for me, captures how it relates to other forms of money across different timeframes and moments in history.

Now at this point in history, we have lots of other technologies of value out there.

There’s the things it’s not – fiat, bonds, shares etc.

But beyond “shiny hard to find rock” there’s far more under the hood.

First of all, humans value projects and effort.

Gold represents the expenditure of effort needed to acquire it.

It’s sort of like an “effort fossil” – see I have it here…the proof of effort.

It’s easy to melt down and mould into new forms.

And if you have it in your possession, who is to say immediately that it is not yours?

That’s the no-counterparty side that makes physical gold so interesting to people. In a fiat currency world where one person’s asset is another’s liability, this is a valuable attribute.

But let’s zoom out a bit…

Techno-monetary competition?
What on earth is that?

To my knowledge, I coined this term writing for this business around 2019.

I was trying to explain the connection between gold, cryptocurrency and traditional fiat money.

For me the term is quite straightforward – it explains those periods of history when technologies of value compete.

There would have been some stragglers who preferred seashell currency before metal coins took over as the basis of money.

Then paper money came along…BUT…it was always backed by gold.

And finally, facing economic pressure, Nixon took us off the gold standard in the 70s.

The Fedwire system was introduced, and “free-float” currency was born.

Then in the midst of the GFC, Bitcoin was born.

Oh dear, now we have three competing technologies of value.

This may all be old hat for those who’ve watched the market for years or decades, but its important context for what happens next.

You see, the techno-monetary competitive environment we are currently in represents a distinct historical phase in how humans value assets and the effort we put into them.

And the ascription of value game that China and the US are facing off around right now has many levers.

Stop looking at gold in the USD price…

For so long, we’ve been looking at the gold price in USD terms.

That’s obviously the barometer of value right?

The global reserve currency?

Perhaps in light of recent purchases of gold by China, we think of it in terms of Yuan price.

Then of course, there’s this:

Source: Reuters

That’s right – Tether is backing itself with gold.

Tonnes, and tonnes of the stuff.

Tether is now outpacing central bank purchases of the oldest remaining technology of value left in the game.

This is what I mean by techno-monetary competition.

And when it comes to technologies of value out there in the market, gold seems to be the pivot point for the massive geopolitical moves afoot right now.

That is gold’s power.

I read German philosopher Friederich Nietzsche at a young age, and he spoke at great length about power.

Right now, that power is in the ground.

Iran’s oil fields are the tip of the iceberg.

So don’t read Nietzsche – watch this presentation instead for my take on how the great world powers are positioning themselves. And learn what it means for investors like yourself.