Gold in 2023, by Alasdair Macleod

What will be the fates of real money (gold) and fake monies (currencies) in 2023? From the Internet’s best economist, Alasdair Macleod, at goldmoney.com:

his article is in two parts. In Part 1 it looks at how prospects for gold should be viewed from a monetary and economic perspective, pointing out that it is gold whose purchasing power is stable, and that of fiat currencies which is not. Consequently, analysts who see gold as an investment producing a return in national currencies have made a fundamental error which will not be repeated in this article.

Part 2 covers geopolitical issues, including the failure of US policies to contain Russia and China, and the consequences for the dollar. By analysing recent developments, including how Russia has secured its own currency, the Gulf Cooperation Council’s political migration from a fossil fuel denying western alliance to a rapidly industrialising Asia, and China’s plans to replace the petrodollar with a petro-yuan crystalising, we can see that the dollar’s hegemonic role will rapidly become redundant. With about $30 trillion tied up in dollars and dollar-denominated financial assets, foreigners are bound to become substantial sellers — even panicking at times.

The implications are very far reaching. This article limits its scope to big picture developments in prospect for 2023 but can be regarded as a basis for further debate.

Part 1 — The monetary perspective

Whether to forecast values for gold or fiat currencies

This is the time of year when precious metal analysts review the year past and make predictions for the year ahead. Their common approach is of investment analysis — overwhelmingly their readership is of investors seeking to make profits in their base currencies. But this approach misleads everyone, analysts included, into thinking that precious metals, particularly gold, is an investment when it is in fact money.

Most of these analysts have been educated to think gold is not money by schools and universities which have curriculums which promote macroeconomics, particularly Keynesianism. If their studies had not been corrupted in this way and they had been taught the legal distinction between money and credit instead, perhaps their approach to analysing gold would have been different. But as it is, these analysts now think that cash notes issued by a central bank is money when very clearly it has counterparty risk, minimal though that usually is, and it is accounted for on a central bank balance sheet as a liability. Under any definition, these are the characteristics of credit and matching debt obligations. Nor do the macroeconomists have an explanation for why it is that central banks continue to hoard massive quantities of gold bullion in their reserves. Furthermore, some governments even accumulate gold bullion in other accounts in addition to their central banks’ official reserves.

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