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Charles’ Note: News broke last week that foreign central banks now own more gold than dollars. 

My only question is what took them so long?

Yes, I understand that the currency of a country $37 trillion in debt isn’t one that is likely to hold its value. That’s obvious. 

But wasn’t it just as obvious when we were “only” $30 trillion in debt a few years ago?

Or, going a little further back, when we had a Fed Chair – Ben Bernanke – joking publicly about dumping dollars out of helicopters to spur inflation? 

It’s not shocking that foreign central bankers own more gold than dollars. It’s shocking they still own any dollars at all. 

As fellow libertarian traveller James Hickman – cofounder of Schiff Sovereign – points out, they may not be for much longer. 

So, what are the investment implications of the loss of confidence in the greenback? 

I’ll let James lay it out for you. Enjoy!

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Dollar ALERT: Foreign Central Banks Now Own More Gold Than USD

By James Hickman, Co-Founder, Schiff Sovereign

For centuries, the Byzantine Empire’s gold coin, known as the solidus, was the backbone of global trade in the medieval world. Nearly pure gold, merchants from Baghdad to London trusted it.

But by the 11th century, multiple emperors had chipped away at its gold content… watering it down to pay for wars, bureaucracy, and the costs of an empire in decline.

By the time Alexios I took power in 1081, the solidus was barely 40% gold. Merchants never knew which version they were getting or how much real gold it contained.

Alexios tried to restore confidence by minting a new coin in 1092. He called it the hyperpyron, which is literally Greek for “super-refined.”

At 85% purity, it didn’t have the same purity as the old solidus, but the hyperpyron was credible enough to restore trust… for a little while.

History repeated itself over the next century. Later emperors debased the hyperpyron, just as their predecessors had debased the solidus. By the late 1200s, there was no more trust in the currency.

When Venice launched the ducat in 1284, with over 99% pure gold content, it also came with a pledge that the Venetian government would never debase it.

Combined with Venice’s trade power and rapidly growing wealth, the ducat quickly became the literal gold standard for international trade.

So much, in fact, that by the mid-1300s, the once-mighty Byzantine Empire was pawning its imperial jewels in exchange for Venetian ducats.

(It would be the loose equivalent of the U.S. government selling off national parks in exchange for Swiss francs…)

That was the moment it became obvious to everyone that the Byzantine Empire was no longer the world’s dominant superpower… and that the world’s reserve currency had changed hands.

This is a recurring pattern. Most reserve currencies have a long, slow decline, as well as clear moments that stand out.

Today, the U.S. government isn’t quite pawning Mount Rushmore for Swiss francs… but we’re witnessing a clear moment that demonstrates a loss of confidence in the U.S. dollar:

Foreign governments and central banks now own more gold than they own U.S. Treasury securities.

That means that foreign nations trust in gold more than they trust in the U.S. government.

We’ve been saying this for years: Foreign central banks are selling their dollars, and using those dollars to buy gold.

Why? 

Because the U.S. government’s massive debts make it a less trustworthy lender. 

While it’s unlikely that the U.S. would outright default, it is very likely that Uncle Sam will eventually turn to the money printer as the “solution” to its debt challenge.

Any foreign central bank that owns a ton of U.S. debt doesn’t want to be paid back with inflated dollars. Better to minimize that exposure now and pare down their dollar holdings.

What do they buy instead? Gold.

Not because central bankers are “gold bugs.” But because gold has a 5,000 year history of maintaining value. 

Because it is dense wealth they can hold physically in their vaults. 

Because there’s a large enough global market to be able to buy or sell metric tons at a time.

This growing gold demand from foreign central banks has been the main driver of gold’s massive bull run – from $1,700 per ounce just three years ago to over $3,600 per ounce today.

I take no pleasure in pointing this out, but it’s becoming clear that foreign governments and central banks simply no longer have the confidence in the U.S. that they once did.

You can see the momentum building.

Just recently in China, Vladimir Putin, Xi Jinping, and India’s Narendra Modi stood before the world urging trade in national currencies and laying the groundwork for a new financial system designed to chip away at the dollar’s dominance.

It’s not hard to figure out why.

According to its own projections, the U.S. Treasury will need to sell over $22 trillion in new debt over the next 10 years. That’s not a worst-case scenario. That’s the baseline forecast.

Foreign governments and central banks are traditionally one of the largest buyers of U.S. government debt. Yet they’re clearly starting to back away from Treasury bonds… and the U.S. dollar.

This means that the Treasury Department will struggle to find lenders over the next several years… which very likely means relying on the Federal Reserve to “print” the money they need… which of course would be highly inflationary.

This isn’t a doomsday prediction. It’s not a partisan argument. It’s just the reality that America is facing.

Most likely nothing catastrophic will happen tomorrow. Or this month. Or this year. But America is clearly running out of time.

This is not a time for panic. In fact it’s critical to understand that there are rational ways to prepare for the challenges down the road.

We’ve been suggesting gold (and silver) for a number of years, both of which have proven to be excellent shelter.

At $2,000 gold we said this was just the beginning. 

At $3,000 gold we said that the story was still in its early days. 

At $3,600 gold, I’m still telling you that this story has much longer to play out.

Nothing goes up or down in a straight line, so there will always be pullbacks and corrections. But the case for gold easily goes to $5,000… and potentially well over $10,000.

That’s not based on any idolatry or fanaticism… but rather a cogent, rational understanding of how global central banking works.

The bottom line is that the world is losing confidence in the U.S. dollar as the global reserve currency. Right now, there is no alternative. Except for gold. That’s why central banks (over the long run) will keep stockpiling it… and driving the price higher.

To your freedom,

James Hickman 

Co-Founder, Schiff Sovereign