Tuesday, August 13, 2019

The risk-prevention function of gold has been fully manifested in the past week. In August 2019, the international price of gold regained its US$1,500 per ounce benchmark after a lapse of six years. On the last trading day before the weekend, the international gold price opened at US$1,503 per ounce. Although the market closed below US$1,500 per ounce, gold remained a primary focus for the market. As oil prices are often inversely related to gold prices, we are confident that the future gold price will reach a new high of US$1,800 per ounce, and there will be increasingly more public opinions rooting on the world's resumption of the gold standard. We would like to remind the market, especially the global financial community, that the current world market structure has undergone tremendous changes, and that the world market has become hugely saturated. It is in this same time that the United States is increasingly withdrawing itself from the multilateral world in order to protect itself and enhance the value of its own market space. This has led to structural adjustments in the global market, and the signs are increasingly evident, although this has yet attracted the concern of the global financial community. In fact, more people are hoping that such structural adjustments would not happen, or even better, that it could return to what it used to be.

However, this "returning to what it used to be" is unlikely to happen because it is a structural adjustment based on global capital surplus and severe overproduction. The world is facing serious global economic and financial crisis as outlined in the "crisis triangle model". Now, the severe impatience shown by various social strata in all countries of the world has become a dangerous and extreme trend under the political bureaucratic systems of these countries, and this has profoundly affected the global order.

What then, will the outcome be?

The most significant result is the reemergence of the gold standard system. Capital surplus and overproduction have suppressed the global market space to a greater extent, causing it to undergo structural adjustments. At the same time, the suppressed global financial system is also trying to adapt to this huge change and the core of this change centers around the status of the U.S. dollar. From the perspective of the global financial system, the U.S. dollar is a super currency highly supported by most of the world's geopolitics. The status of this super currency is unbreakable, but the problem is that the United States itself wants to give up this position and move toward the freer "Trumpian future" that is becoming increasingly difficult to control. This has caused the global market-facing this uncertain future to take on a more serious tone.

What picture will a currency under the "post-U.S. dollar era" paint? Which currency can replace the U.S. dollar?

This is actually a process of trial and error, and it is hard for the Bretton Woods Conference to succeed again in this era. As a result, the choice of new global currency then turns into an intriguing process of trial and error. First of all, digital currency is one option for the new global currency, as governments are making efforts to promote it. The market itself is also creating various digital currencies such as Bitcoin and Libra. However, it is far from being widely recognized and trusted by the world's markets, not to mention failing to even gain support from the world's geopolitics. Secondly, we look at regional currencies such as the euro. The world has missed many opportunities since the Second World War. The global financial order has been seriously disrupted by the messy political struggles plaguing the world. The result is a weakening of regional currencies, such as the euro, that are in their nature, barely sustainable.

The remaining option is the gold standard. Even after the collapse of the Bretton Woods system, doubts about the gold standard never ceased, and there were numerous skeptics within the financial community. However, the essence of the problem may be ignored by many people. The core of the gold standard represents a global financial order. When the global financial order is facing collapse, efforts should be made to create a new financial order, which is also an intergenerational renewal of the world financial order. At a time when the United States led the decoupling of the dollar from gold, it successfully relieved its financial responsibility of pegging US$ 35 per ounce of gold. At the same time, however, this actually guaranteed the responsibility of the United States to global finance. On this basis, a new financial order was formed, which allowed the United States to enjoy a huge development dividend. The world and the United States are not willing to exercise such responsibilities for the current global financial order. The public intervention of President Trump in the operation of the Federal Reserve and the global financial market order has led to the necessity for the world's financial markets to find and establish a new financial order. This was the basis for the gold standard's resurgence in the global financial system.

Therefore, the gold standard (more accurately, the floating gold exchange standard) is the only clear solution to the "Trumpian future" of the global financial system, and a decisive effort by the world's markets and financial system to balance the "Trumpian future". It means that America can go her own way and take care of her own concerns, while the rest of the world has the right to make their own choices. In other words, this is a super-hedging and re-balancing process of the world's financial markets to force the U.S. to face up to its problems and make a choice between fulfilling its international financial obligations and responsibilities or give up the international status of the U.S. dollar.

Final analysis conclusion:

All this, of course, is being judged and predicted from the perspective of geo-capitalism. For the world, the gold standard means monetary autonomy. For the United States, a gold standard is an option that cannot be ignored, and its existence has an extremely significant impact. The world's gold reserves in America will have to be repatriated, and America's response will inevitably be doubted. Central banks around the world would move to increase their gold reserves in preparation for the gold standard. With this, the gold price in the global market will continue to rise, which will affect U.S. dollar assets as well as energy prices. Most importantly, whether the United States would be willing to face these huge changes, or reconfigure its position and return to the gold standard, abandoning its domestic political priorities and continue with the past? It remains to be seen.
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