Gold trades above $4,000 today.
Yesterday, we talked about how the run in gold is outpacing even the hot tech trade (Nasdaq). And more broadly, in recent days we've talked about the outperformance of hard assets relative to paper assets this year — a setup that looks like 1972.
What was important about 1972? It was a rare occurrence where gold was up at least 30%, and stocks (S&P 500) up 10% or more, and bonds were positive. And it came as there was a significant shift in the global monetary regime.
We have the same conditions today, including a significant monetary regime shift.
The monetary system is becoming programmable.
As we discussed, the U.S. is pursuing private, regulated stablecoins. And much of the rest of the world is moving down the path of central bank digital currencies (CBDCs).
Both raise the issue of trust. But, unique to CBDCs, centralized money on a government-run, programmable ledger creates the risk that activity could be surveilled, and access could be restricted or frozen.
On the latter, we have a current example, which may be the biggest driver in the global capital flows into gold.
Here's the timeline in the gold chart above:
1: The European Union (EU), the G7 countries (US, UK, Canada, Japan, etc.), and other allies take coordinated action to block or freeze the assets of the Central Bank of Russia (CBR) held in their jurisdictions.
2: The EU officially approves a plan to use the net profits/interest generated by the frozen Russian assets.
3: The EU makes the first transfer of €1.5 billion of proceeds generated by the immobilized assets available to Ukraine.
4: "EU floats 'creative' new way to send billions of euros of frozen Russian assets to Ukraine"—The key debate is now about using the full capital, not just the interest.
5: EU leaders meet and formally discuss the new proposal for a €140 billion loan to Ukraine, to be repaid only if and when Russia pays war reparations.
If a nation's money can be confiscated, the trust that underpins all fiat currency (a government IOU) is weakened. Gold is the safe haven.
