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Jim Rickards: Why gold is the everything hedge

Section: Daily Dispatches

By James G. Rickards
The Daily Reckoning, Baltimore
Wednesday, March 27, 2024

Excerpted from his commentary tonight at The Daily Reckoning, "Gold Is the Everything Hedge":

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Gold prices are being driven higher by U.S. threats to steal $300 billion in U.S. Treasury securities from the Russian Federation. Those assets were legally purchased by the Central Bank of Russia as part of their reserve position.

The actual securities are held in custody in digital form at European banks, U.S. banks, and the Brussels-based Euroclear clearinghouse. Only about $20 billion of those Treasury securities are held by U.S. banks; the majority are held by Euroclear. Those assets were frozen by the United States at the outbreak of the war in Ukraine.

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Freezing assets means the Russians cannot collect interest or sell or transfer the assets or pledge them as collateral. Asset freezes are used frequently by the United States, including in the cases of Iran, Syria, Cuba, North Korea, Venezuela, and other nations. Often the assets are frozen for years but ultimately released to the owner as happened in the case of Iran after 2012.

Now the U.S. wants to go further and actually seize the assets, which may be viewed as outright theft under international law. The U.S. proposes to use the $300 billion to finance the war in Ukraine. European entities have expressed considerable uncertainty about this plan but the U.S. has maintained the pressure and wants to complete the theft before the June and July summits of G7 leaders and NATO members.

If the U.S. steals these assets, Russia will likely confiscate an equivalent amount of industrial and commercial assets located in Russia and owned by German, French, and Italian interests among others.

The bottom line is that if U.S. Treasury securities are not a safe investment, then securities of Germany, Italy, France, the United Kingdom, and Japan are no better. 

The only reserve asset free of this kind of digital theft is gold. Nations are beginning to diversify into gold in order to insulate themselves from digital confiscation by the collective West.

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