Tuesday, July 9, 2019

The US Dollar Relies on Faith, Gold Does Not

"I think that’s very important. The U.S. dollar is a promise to pay. It supposes that people will continue to accept it. Almost every fiat currency in history has always retreated to its intrinsic value, which is, of course, zero. If, as an example, rather than having U.S. dollars in your jeans, you had Venezuelan bolivars, you would understand the promise for what it was. Something that could be broken.

Gold is very different. It doesn’t rely on faith. Gold isn’t a promise to pay. It is, in and of itself, payment. It is an asset that isn’t simultaneously somebody else’s liability. And I think that’s very, very important. I don’t think, as an example, that you’re seeing the Chinese government, the Chinese Central Bank, buying gold because they like the chart. I think that you’re seeing them buy gold because they’re afraid that the U.S. government will use U.S. financial markets and U.S. dollars as a weapon in foreign exchange transactions.

And so the Chinese are looking—and I just point out the Chinese, others are looking the same way—to a medium of exchange that isn’t under anybody’s control and isn’t a promise to pay, but rather constitutes payment in and of itself.

It’s interesting to note, Maurice, that over the last couple of days in the news, you will see that Venezuela exported seven tons of gold to Uganda, and then apparently onto either Dubai or Turkey. A pariah state that can’t necessarily trade in U.S. 10-year Treasuries can trade, can buy and sell gold. But even more interestingly, apparently those gold bars date from the 1940s, and they were payment from the United States to Venezuela for oil that was sold in World War II, when the Venezuelans had some doubt as to the outcome of the war, and weren’t willing to take U.S. dollars for their oil. They were willing to take gold.

So even a creditor as strong as the United States has periods of time, has circumstances, where their promise, which is what their currency is, isn’t acceptable. But there hasn’t been a time in recorded history when gold wasn’t acceptable."

- Source, Rick Rule of Sprott Global