During a recent video presentation, a book titled "The War On Gold" by Antony Sutton, published in 1977, was spotted on a shelf behind a mainstream economist who provides research for leading institutional investors.
This writer acquired this book some 20 years ago and seeing it again triggered an effort to reread it. It is still quite topical, as indicated by the contents listed on its back cover.
Sutton was a strong advocate of the monetary use of gold and a critic of Wall Street moves to help Nazi Germany and the Soviet Union acquire Western technology. It seems highly likely that if he was still alive he would be expressing similar views about China and Western technology and would be unimpressed with China having built up both state and privately owned stashes of gold.
A memorable comment of his about gold was:
"Governments know the value of gold but try to dissuade private ownership. That tells you something."
More information on Sutton can be found here:
The book includes a number of points that seem of great relevance today, including coverage of the efforts undertaken 47 years ago to demonetize gold. Perhaps the book's major message is to highlight just how long the United States has been trying to prevent gold from usurping the role of the dollar.
The book's section on the London Gold Pool is well worth reading even if the remainder of the book is ignored.
This writer has tended to subscribe to the view that the more extensive efforts to suppress gold prices happened during the Clinton administration following publication of the research paper written by Professors Robert B. Barsky and Lawrence H. Summers on Gibson's Paradox. The review of the Barsky and Summers paper by Reg Howe is perhaps the best critique of it.
"The War On Gold" is a reminder that U.S. efforts to de-emphasize gold have been going on over a much longer time span.
Recent remarks by many commentators on international relations, including financial specialists, are pointing toward a developing Cold War between the U.S. and China. A general recent book on this topic is "The New Cold War: How The Contest Between The U.S. And China Will Shape Our Century" by Robin Niblett, the former head of Chatham House, a study organization in London specializing in international relations.
This book is worth reading to understand how this Cold War might develop, as with the possible fracture of the present system whereby China makes and sells manufactured goods to the West. This is topical when the current U.S. administration seems unwilling to allow China to dominate the sale of electric vehicles in the U.S., given the introduction of tariffs to protect the U.S. EV industry and discourage other Chinese imports.
Niblett is quite critical of some of what China has achieved so far, noting: "Rather than being a sign of strength, however, enlarging the BRICS signals China's main weakness in the New Cold War. Xi Jinping must convert China into the leader of the Global South because, if it does not lead the south, it leads no one.
But despite the lengthy list of policy topics they addressed in Johannesburg, the members of the enlarged BRICS lack a common vision other than opposition to U.S. economic hegemony and bring instead some deep divisions, above all the strategic rivalry between China and India and, after its enlargement, between Saudi Arabia and Iran."
If one accepts Niblett's view that the BRICS are perhaps unlikely to be the source of a co-ordinated effort to unravel U.S. dominance of the financial system, then a recent article published by the Financial Times about a possible seismic deterioration of the system caused by a Chinese debt devaluation offers an alternative reason for China striving to unseat the dollar and reassert gold as a dominant global monetary asset:
The author is Professor Russell Napier, who is an expert on Asian finance and writes research reports for many major institutional investors. He is also the leading economist who had a copy of "The War on Gold" on the shelf behind him in the video interview mentioned above. The video is here:
In his FT essay, Napier writes: "The world's second largest economy is about to move to full monetary independence and in so doing will destroy the current international financial system."
Napier considers that China needs to stop its policy of exchange-rate targeting and carry out a significant debt devaluation. Although it is not said in his article, it is clear that Napier is expecting China's devaluing its debt to force the United States to follow, and, as has already happened since his essay was published in the FT, to introduce tariffs to slash Chinese imports.
If the top two economies are going to be forced to devalue, it seems inevitable that gold will be revalued, possibly significantly.
Napier's essay is silent about this step, but it seems plausible that anyone who has read or is prepared to read Sutton's book is well versed on how a gold price reset by China would achieve the devaluation of its debt dominated in yuan and force the U.S. to follow.
Years of acquiring gold has seemingly enabled China to decide when a reset happens, although for domestic policy reasons it seems unlikely to be delayed much longer.
Hence, if Napier is correct in his assessment of the likely actions of China, a gold price reset in dollar terms seems likely before too long. Of possible relevance to the timing is whether Xi prefers to face a Biden or a Trump administration for the next four years. An imminent gold price revaluation forced on the United States seems unlikely to help President Biden in November.
The recent announcement that long-term Chinese government bonds will soon be issued might point to Chinese willingness to wait until after the U.S. presidential election to improve the chances of dealing with Biden rather than Donald Trump.
But the recent announcement of U.S. tariffs against China are hardly helpful to the effort to strengthen Chinese economic activity.
So it is perhaps hard to deduce which is Xi's preferred "Manchurian candidate."
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