There is a school of thought that we are starting to see defensive action by the holders of wealth against runaway public debts in America, Europe and Japan, pushed closer to the point of no return by the fiscal trauma of Covid.
The path of least political resistance for chronic debtors is to erode the burden via inflation, and when investors refuse to take it any more, by means of financial repression.
The International Monetary Fund says global public debt will hit $100 trillion in 2024. The US is running a budget deficit of 7.6pc of GDP this year and will continue running deficits above 6pc through this decade, pushing the debt ratio 132pc in 2029 even if Washington behaves, which it will not.
The Committee for a Responsible Federal Budget says Donald Trump’s unfunded tax cuts would add another $8 trillion to the US debt over a decade, and Kamala Harris’s unfunded spending would add $4 trillion. The fiscal profiles of China and Brazil are not much better.
Yet the puzzle remains. Half the gold-buying since March is off books, via proxies, contriving to avoid detection, which raises an unpleasant possibility: is this really about China accumulating a war chest for a showdown with the West, presumably at a well-chosen moment as Russian forces close in on an exhausted Ukraine?
The fear in strategic circles is that Xi Jinping will impose a “customs blockade” on Taiwan, controlling the supply of semiconductors and asserting sovereignty short of an outright invasion. Any hesitation by Washington (probable) would lead to the collapse of US credibility across East Asia.
For the last three years, Russia, China, Iran and North Korea have been operating in collusion and on a war footing, each fostering belligerent hyper-nationalism as a means of regime survival, and all aiming to press their advantage before the West gets a grip.
The democracies, lost in their culture wars, have not responded by putting their societies on an equal war footing to deter this opportunistic escalation. If we are indeed drifting towards a fundamental and violent convulsion of the post-war global order, wouldn’t you expect gold to go parabolic?
