Trump’s radical plan and gold’s surge:

As i sit down to write this blog, i checked the US debt clock. This is the link if you are interested to check- https://www.usdebtclock.org/. When I checked the figures, the US current debt is $37.8 trillion. When the previous US administration left, Janet Yellen , the then treasury secretary had been issuing plenty of paper with short expiration to take advantage of the lower interest rates in the shorter end of the curve. Now by all means i am not a yield curve expert and my blog is on a related matter. But suffice it to say that because of this, each year the US has to issue $9 trillion to refinance maturing debt and fund the deficits. So the US administration has a big problem. Trump came into office promising to cut taxes and boost the economy. But the constant funding needs of the treasury meant that the market was supplied with huge amount of treasury bills causing the rates to rise. The debt repayment outlays became more than the budget of the military. The US not only had twin deficits and hollowed out industrial base, but its empire status was being challenged by a rising China. This became glaringly obvious when US and other G7 nations imposed the most severe sanctions possible against a nation against Russia for invading Ukraine. In my view, Biden truly believed that he could bring Russia to its knees within weeks by imposing the sanctions and seizing Russian assets. But he had failed to account for the growth of China and to a lesser extent India. Putin was able to withstand the sanctions by selling oil to China and India. He also used Russian reserve gold as collateral to withstand the sanctions.

When Biden seized the Russian assets in the hope of bringing Russia to its knees and failed, the trust in the US dollar was severely undermined. At any point of time, the US and its allies can potentially seize the assets of a nation state. The global south countries needed an alternative asset that could be used if sanctions were imposed. They started to diversify some of their holding into gold. The US dollar reserve currency and the control of the SWIFT system gave US and its G7 allies extraordinary privilege. If we were to use game theory and all the nations in the world as participants, then the US would always win the game because of this privilege. So countries always played by the rules set by the US. However when Russia proved that it could withstand the sanctions, the aura of invincibility was lost.

The above is the background upon which the article is going to branch out. All of the following are hypothetical and speculative and is not based on facts. It is based on game theory application of the current geo-economic conditions. It is an attempt to explain the current rally in gold and speculate on how far the price can go. This is done based on Muffett’s belief and should not be construed as investment advice. Also this post is not political and the focus is on the investment thesis around gold. It is our belief that the rivalry between US and China will be fought on multiple fronts but principally economic. If there is direct conflict, then it will end in a nuclear war and the end of the world. On this basis, each will try to cause collapse of the other by economic means and make then accept defeat. It is important to realise that the Chinese government also has signficant debt equalling that of the US. But this debt was built up to develop infrastructure and support for key industries which the CCP has deemed as strategic. They also run a huge current account surplus.