Don’t throw caution to the wind when investing, on the contrary you want to listen closely when the breezes blow through the treezes. In Warren Buffet’s letter to his investors in 1959 he makes this observation about the stock market and the exuberance the market was showing, “However, I do believe that wide-spread public belief in the inevitability of profits from investment in stocks will lead to eventual trouble. Should this occur, prices, but not intrinsic values in my opinion, of even undervalued securities can be expected to be substantially affected.” I think we need to remember that. Buffet always values a security by the discounted cash flows of its future earnings. He bases his analysis on its current operating earnings not GAAP earnings, which is why he puts so little value on forward-looking expectations or forward P/E ratios etc. Charlie Munger put no stock in guessing the future. They based their intrinsic value calculations on the current history of the company. If Buffet is saying that even the prices of undervalued securities may fall in a scenario where the public creates a belief of expected profits (which clearly defines current investing) that to me looks like an opportunity. I think Warren’s current stash of cash in Berkshire Hathaway reveals that his opinion hasn’t changed much in almost 60 years. Berkshire Hathaway is sitting on well over $300 billion in cash earning over $12 billion in interest and he is waiting for trouble to occur. Buffet is reading the wind so if you don’t believe me, believe in the world’s greatest investor.
At the risk of sounding quaint, way back in November of 2022 I wrote about the gold standard and how we were first taken off the gold standard by FDR and during that episode I mentioned the monumental $31 trillion debt. How quaint, how cute, it looks like a puppy compared to this big, pawed Doberman we have now approaching $37 T. This cooperative doesn’t exactly have the historical relevance as 60 Minutes, yet. That’s right, I’m coming for you Morley Safer. We haven’t been on the information superhighway nearly long enough to see $6T of debt occur, but we have. The reason I bring this up today is that the little yellow metal, a bygone relic in its own right, seems to be voicing its opinion at the sheer stupidity of this situation. When we wrote that, the price of an oz of gold was around $1,800 an oz. It recently crossed the $3,000 an oz mark. We list the price every weekend on Looking Backwards Looking Forwards because it should be like a navigational buoy to every individual with regard to the monetary system.
So why is gold up 67% in 30 months? That is a good question and there are a few answers. First, when the United States seized Russia’s foreign reserve assets aka Treasuries the entire world was put on notice that the United States could seize your bank’s assets if you disagreed with them. This has accelerated gold buying instead of US Treasury buying by foreign banks and this has been a huge driver of foreign demand for gold. Second, Donald Trump continued Biden’s policy of mistrust in the United States with his tariff policies. They are on, they are off, we won’t trade with you if you do business with this country, we will make this country part of the United States etc. That is just bad for international business when Trump’s stated goal is more balanced trade. Who is going to want to trade with you? In fact, foreigners are boycotting vacationing in the US and boycotting US products abroad which is the exact opposite of Trump’s stated goals. I say stated goals because I secretly think he is using this as cover for creating a huge recession that will lower the long-term treasury rate to a level he and his Treasury can refinance US debt. That is my opinion of what they want to do, but not necessarily what they are doing or perhaps even what they want to do. If you aren’t buying US goods in France for example, then you don’t need as many dollars.
Now we have a rising gold price and central banks that have been buying for three years which leaves the supply available for purchase to be in higher demand. We have seen repatriation to the United States in a massive way as some think that the metal is flowing home before the tariffs go into effect. This from ZeroHedge though, “London’s bullion market is under strain. A surge in gold shipments to the U.S. has left traders scrambling to borrow from central banks, with wait times at the Bank of England stretching from days to weeks. The gold supply chain, long considered reliable, is now exposed to cracks that weren’t apparent before.
The free float—gold available for immediate OTC trading—has declined after the wave of shipments to New York. Despite the logistics claims, many have said that this is just a good old-fashioned stock-out. For decades, bullion banks operated on the assumption that gold was always available. The system worked because gold isn’t consumed—it’s recycled, leased, and traded. When supply disruptions occurred, banks could borrow metal, cover their needs, and replace it later. That model is now failing.
A new kind of buyer has entered the market: one that doesn’t see gold as a financial instrument but as money itself. Countries like China and Russia have spent years accumulating gold, prioritizing it over U.S. bonds. Their strategy has chipped away at the available leasing pool, leaving Western banks exposed. Bullion banks relied on a game of musical chairs, borrowing gold to meet short-term needs. But when enough chairs are removed—when buyers refuse to lease their holdings—banks are forced to compete for an ever-dwindling supply. That’s what’s happening now… With London’s supply already strained, large shipments of gold to the U.S. are adding pressure. Whether the movement is driven by tariff concerns or broader repatriation efforts, the effect is the same: gold that was once part of London’s available float is being pulled out of circulation.”
There is a race to get gold. Hold on, this is from the TimesNowNews in October of 2024, “On Dhanteras, the Reserve Bank of India (RBI) announced the repatriation of 102 tonnes of gold from the UK, reflecting a strategy to strengthen domestic reserves amid global uncertainties. With over 510 tonnes now stored in India, RBI aims to secure assets while enhancing market stability and meeting national demand.” Whoa, that is a 20% increase. Some people like Martin Armstrong are saying people are expecting war in Europe and they are following the playbook of World War II and getting their gold out.
Another possible reason is good old-fashioned regulation. Basel III is the last in a trio of worldwide banking regulations that have been slowly implemented since the great financial crisis with the hopes of staving off systematic shocks to the very core of the financial system. Whether they do or not, I have no idea, but they claim to strengthen the large systematically important banks. I’ll spare you the boring, but as part of this regulation, banks are required to have a certain part of their reserves in what are called Tier I risk free assets. There are now two assets that qualify cash or US Treasury cash like instruments and gold. The important part is that it is not gold derivatives but physical bullion. As WallStreetMojo writes, “In addition, it mitigates the risk of reserve capital since they prevent financial institutions from using derivatives and condemn them to own physical gold assets.” These regulations take effect on July 1, 2025. This could be driving the gold price higher as banks are securing some gold as their Tier 1 asset.
I can think of a couple reasons why they might prefer to own this versus American treasuries. One, as we talked about a foreign country could have their treasuries seized by American or American proxies like Europe and two the risk-free US Treasury might not be so risk free anymore. We have always asked, who is going to buy the bonds and at what price? We just added $6 trillion in debt in 30 months, perhaps that might give another country pause regarding a country that has been around 250 years versus holding a metallic standard going back 5,000 years. The banks have been in trouble for awhile holding bad US treasury purchases on their books, but if they put gold on their balance sheets and its price goes up then voila their problem isn’t so bad.
There is an old saying that he who controls the gold makes the rules. In the late 60’s, it was our gold that was flowing out of the US and into other countries as we have discussed before. However, what I didn’t know was how Paul Volcker was threatened by gold.
This is from Joe Salerno via the LibertarianInstitute .Org. “Mr. Volcker certainly deserves credit for curbing the Great Inflation of the 1970s. However, he also merits a lion’s share of the blame for unleashing the Great Inflation on the US and the world economy in the first place. For it was Mr. Volcker who masterminded the program that President Nixon announced on August 15, 1971, which unilaterally suspended gold convertibility of US dollars held by foreign governments and central banks, imposed a fascist wage-price freeze on the US economy, and slapped a 10 percent surcharge on foreign imports. Tragically, by severing the last link between the dollar and gold, Volcker’s program scuttled the last chance of restoring a genuine gold standard.
Only a real gold standard could have halted and reversed the slow-motion collapse that the international monetary system had been undergoing since the mid-1960s due to large and persistent US payments deficits driven by profligate dollar creation.
Indeed, Volcker struggled mightily to make the dollar appear strong, even while rampant money printing to finance Great Society welfare programs and the Vietnam War inexorably weakened it. But Volcker bitterly opposed raising the price of gold, because he feared that open devaluation of the inflated dollar would not only diminish the status and reputation of the US, but also reward people and countries he detested, namely, speculators in gold and gold-producing countries such as the Soviet Union and South Africa. He especially loathed and wanted to punish President Charles de Gaulle and the French for embarrassing and discrediting the US by withdrawing from NATO and exposing the weakness of the dollar by insisting on converting their dollars into gold in the face of US threats to remove military protection against the Soviet Union.”
When Donald Trump hastens back to William McKinley in the late 1890s and waxes poetic about tariffs, I wonder if he was running another misdirection from what we called it in the 1970s, a surcharge on foreign imports. Or they were removing military protections from the Soviet Union, and now he’s threatening to remove military protection against the Russians. These damn guys, always bsing us. I’ll be damned if I don’t feel a bay breeze blowing across my backside this very moment. Threatening to remove military protection for Europe from the Soviet Union, am I in the twilight zone or have we been here before?
I have said that Trump wants to get the long-term Treasury rate lower and that is his primary objective, and what better way to do that than auditing all that beautiful gold in Fort Knox. What would happen if it wasn’t there? We had to bring it home and then we can show it off with Musk and Trump and a Tesla and Howard Lutnick smiling like a monkey making love to a football very slowly and with great purpose. That would create trust in the system the gold commercial not the Lutnick leather ball lovemaking. A gold showcase would add credibility to our nation’s finances, and make our treasuries more apt to be trusted and bought without a corresponding high yield. This flies in the face of the stupidly high budget and spending bill that just passed but I digress. What is important is the appearance of stability, if only for the lack of it. Don’t look at the $37 trillion in debt, look at that shiny pile of gold. It hasn’t also been fully audited in decades so this would be high theater and a wonderful distraction. It also keeps the gold out of European hands that are none too happy with us right now after threatening to not protect them from Russia this time. Last time they pulled their gold and this time we did it to them before they could do it to us. Perhaps.
I don’t know the reason why the gold market is cooking whether it be tariffs, war, trust, inflation hedging, or nationalism. What I do know is it is happening and happening in a large way. What I also know is that gold performs best in times of uncertainty so maybe the market of golden rocks is sniffing out the same thing Warren Buffet is smelling. In other words, say it with me now, can you smell what the rock is cooking?
Sincerely Yours,
C Thomas Printer
Also born on this date… the cantankerous actor, Strother Martin.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.