Marking time

Gold has been marking time this past week - hardly surprising given it's gone up by 40% in Dollar terms in the past 12 months. The price has similarly rocketed in Yen, British Pounds and Euros. If you are living in Iran the price of gold coins over the same period has been nothing less than astonishing - more than 80%. The purchasing power of Iran's currency, the Rial, has collapsed under inflation of 30% a year. It's been above that level since 2018, impoverishing the middle class

The surging price in Iran, the world's fifth biggest gold consumer, is obviously a response to the Iranian government's hopeless management of the country's economy. Iran is subject to a host of sanctions, from the European Union (EU), the UK and the US. But a lot of the economic damage is self-inflicted.

Self-wounding now seems in vogue. Far from being at the end of its bull run, gold is just pausing for breath.

Growth runs into the sand

The OECD (Organisation for Economic Cooperation and Development) is one of those multinational bureaucracies that makes occasional prognoses about the state of the world's economy. Like all of them it gets specific things wrong. But like all of them it tends to get the overall trend right. And its latest forecast is bad news for stock market investors but good news for gold holders.

In broad terms the global economy is slowing says the OECD, to 2.9% this year against 3.3% last year. It projects no change for 2026. As for inflation, the OECD reckons it will be 4.2% this year for its 38 member nations and 3.2% in 2026. It may well be wrong about the specifics - but if it's not?

Tariff targets

The OECD, like most conventional economists, hates tariffs. They will "all pose significant risks to growth", as like to "fuel inflation" which "may stay elevated for longer than anticipated." Well, yes. But some of the US tariffs are targeting a serious trade imbalance; last year the US had a negative trade balance of almost $18 billion with China. The US is far from being the only country to raise protectionist barriers against imports. Canada has a 100% tariff on imported Chinese electric vehicles (EVs); the EU tariff against Chinese EVs ranges from 7.8% to 35.3%; India's tariff on Chinese EVs is 70%-100%.

It's not just Chinese EVs that threaten to flood the world. A single drone-making Chinese company, DJI, controls an estimated 90% of the US drone market; the US Congress looks likely to pass legislation banning DJI drones, even though American police departments and first responders say they are far superior to available US models.

The huge backlash against the White House fails to understand that the tariff 'war' is being fought to prevent the US from being reduced to China's resource colony.

All to play for

Whether it will succeed is an open question right now. The tariff 'war' is being played out against a very uncertain background.

One uncertainty is debt. The US national debt will pass $37 trillion in June. A tax and spending Bill now inching its way through Congress may add $2.4 trillion to that by 2034 according to an estimate by the Congressional Budget Office (CBO), by lowering revenues by more than $3.6 trillion. The overall debt as a percentage of gross domestic product (GDP) has been stuck around 120%, i.e. the US debt is now 20% more than national production. The President wants to scrap the debt ceiling, the legislative cap on how much the federal government can borrow.

Worries about America's debt situation have global reverberations. That was starkly evident on 21 May when an auction of US government bonds attracted only tepid interest. That followed the previous day's auction of Japanese government bonds, which was received with similarly low levels of buying interest. Japan, like the US, is saddled with huge debt.

That US long-term debt is losing its once semi-sacred place signals a lack of faith in the fiscal responsibility of the federal government. "If something cannot go on forever, it will stop" said the American economist Herbert Stein.

The last resort

Except that the borrowing will not stop. When you can't borrow any more, then create it.

When the last buyer of US government bonds exits, the government will find other ways to borrow. It's already done this during the Great Financial Crash of 2008. Quantitative Easing (QE) - which was nothing more than a thin disguise for printing money - was used then to get governments out of a hole. Even though flooding the markets with newly created money delivered higher inflation and debauched fiat money it was lauded as a solution to an immediate crisis. It just deferred the crisis.

Gold is money

There's a reason why 11 US states now recognize gold as legal tender. Belief in paper currency is evaporating. The decline of the US Dollar's purchasing power will continue as the federal government hurtles closer to bankruptcy. Dollar dominance has been synonymous with US dominance for at least 80 years. That era is drawing to a close and with it global certainty is turning into global fragility.

For centuries gold was the only universally accept form of money. Stores in those 11 states may resist if you try to purchase items with actual physical gold, but they will be happy to take a debit card on which e-gold is stored. Thanks to Glint you can use gold as e-money everywhere that debit card is accepted.

For UK clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debt card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.