Several central banks are preparing for a return to the gold standard. That's what gold market analyst Jan Nieuwenhuijs says in conversation with Holland Gold. Using unique graphs, he shows that more and more gold is shifting from Western countries to emerging economies, preparing these countries for a monetary reset. Furthermore, he discusses the workings of the global gold market, the correlation between gold price and real interest rates and gives his view on alleged manipulation in the gold market.

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How does the gold market work?

Nieuwenhuijs explains that the gold price is mainly definite by institutional parties, who take positions on a large scale and can thus move the price. He also describes the workings of the futures market, where traders trade precious metals on paper. This market is many times larger than the physical gold market and therefore much more important for the price formation of the precious metal.

On the Futures market market participants take positions in gold, because it is much easier to trade contracts than to move physical bullion. Some parties use the futures market to hedge their physical stocks, while others use it to speculate on the price of gold. According to the gold market analyst, speculators play an important role in this.

Manipulation?

According to Nieuwenhuijs, there is evidence of manipulation in the gold market, just as other markets are manipulated. In recent years, there have been many reports of manipulation, for example by JP Morgan and Deutsche Bank. But most of the time it's about Spoofing, which is different from structural suppression of the gold price.

Nieuwenhuijs only sees manipulation with intraday prices, not on a fundamental basis. There are many cowboy stories about manipulation in the gold market. Many gold blogs focus on the sharp price drops in the market, but do not look at the sharp price increases that also occur with some regularity. That in itself is not enough to speak of manipulation.

Correlation between gold and interest

In recent years, there has been a Strong correlation between the price of gold and the real interest rate, which indicates that people pay a higher price for gold when real interest rates are low. This correlation sounds logical, but according to Nieuwenhuijs there is no guarantee that this correlation will persist. There were also periods when there was no correlation between gold and real interest rates. This trend can be a Self Fulfilling Prophecy if more people start acting on it. But that's not to say that this correlation will hold up in the long run.

According to the gold market analyst, this correlation is also not a good reason to own gold. For him, gold is much more important as a hedge against systemic risks, failing policies by central banks or a possible reset of the financial system. Gold is caught in this correlation and has lagged a bit this year. Compared to the high inflation we are seeing now, the Gold price a bit left behind.

Fundamentals of Gold

According to Nieuwenhuijs, the fundamentals of gold are still very strong, because central banks bought bonds on a large scale and lowered interest rates. It is a dead end, the negative effects of which are gradually increasing. As a result of all this stimulation, the Moral hazard both in governments and in central banks.

In addition, there are secondary effects, such as the enormous increase in the price of houses, shares and bonds. You get more economic inequality in the economy and an increase in zombie companies. As long as they are kept alive they draw Factors out of the economy. As a result, the economy becomes less resilient and flexible, resulting in lower economic growth. "We are demolishing the financial system and the economy," says Nieuwenhuijs.

He expects the trend to move towards a global gold standard. This can happen because central banks start to revalue gold. We are already seeing that central banks are accumulating a lot of bad debt on their balance sheets. Those debts will have to be written off one day, because there are few alternatives. According to Nieuwenhuijs, we can no longer expect strong economic growth, while cancelling debts is not a desirable option from a social point of view. A third option is for governments to raise taxes, but there is not much room for manoeuvre there either.

Revaluation of gold

According to Nieuwenhuijs, restructuring debts is the most likely option. In that scenario, central banks will wipe the debt off their balance sheets and use their gold to absorb that loss. Some central banks already put the increase in the value of gold on the liabilities side of their balance sheets under a Revaluation Account. This is a buffer that central banks can use to remove debt from the balance sheet. Central banks can increase the price of gold, for example by actively bidding for gold at a much higher price. In this way, the ECB can Buy gold With, for example, €200,000 per kilo, because in theory she can create unlimited euros.

This isn't just theory. In 1937, the Dutch Central Bank (DNB) had already issued a Revaluation Account used to offset losses. The gold market analyst does not expect a scenario like in 1933 with the nationalization of gold in the United States. Trust in the authorities is too low for that.

Gold Stocks

In this video, Nieuwenhuijs shows that Europe and the United States had a lot of gold on their balance sheets after the Second World War. It explains that this has arisen from history, because many Western countries switched to a gold standard. Now that the balance of power in the world is changing, we are also seeing major shifts in gold stocks. For example, emerging economies continue to buy gold to strengthen their balance sheets.

After the Second World War Tried European countries return to some kind of gold standard, but without success. In 1999 they decided to sell gold in a coordinated manner, according to Nieuwenhuijs in order to redistribute the gold reserves around the world. An interesting angle, which he substantiates on the basis of historical sources and unique graphs.

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This contribution comes from Geotrendlines