Speaker 1This is the Commodity Culture Podcast, where we interview prominent investors, fund managers, analysts, and company CEOs to give you an edge when it comes to investing in the commodity space. James Rickards, it is great to have you back on Commodity Culture. Let's kick things off with the gold market as we saw it break out towards the end of August, peak at around $4,600 and then drop back to around $4,300 where it sits today. The bearish factors seem to be continued conflict in the Middle East and the potential for a rate hike out of the Fed. Do you see those factors as headwinds for gold right now? And how do you see the gold market playing out for the remainder of the year?
Speaker 2Yeah, historically, those, well, I would say the geopolitical uncertainty probably supports the price of gold, possible Fed rate hikes. And you could argue both ways. Normally, the conventional wisdom is, hey, interest rates go up. Gold doesn't have interest. We understand that. The price goes up, but that's part of the attraction, but it doesn't have interest. Treasury, securities, money market funds do. So if you're getting a little bit higher interest, you say, well, I'd rather have the money market than the gold because I'm getting this interest. And you can do all the math behind that. And that's true as far as it goes. But it's never the whole story. As far as the price, though, yeah, it's around $4,300, give or take. What's important about that, Jesse, is that, as you know, this is the commodities place to be. Things never move in a straight line. If they're trending up, they don't go straight up. And there is volatility along the way, and particularly with gold. And when I see the dollar price of gold bouncing around, you know, when I, I say to myself, is gold is gold, you know, it's an element, atomic number 79. It just sits there, very attractive as an asset in my view, obviously. But when the price is moving around, that tells me more about the dollar than about gold. Because as I say, gold is, is what it is. But if the dollar price is moving around, it says something about the dollar, and I find that, that very valuable. But the main, my main takeaway right now is that gold did not make a new low. It did not. It didn't really push that, that interim low, which was right around $3,900 an ounce, give or take. And I said that months ago, before it happened, you know, January was the peak, then it went down very significantly as it was going down. But before it hit the bottom, I did an analysis, I think we talked about it on our last interview, based on some very, very useful information I got from Jim Rogers, you know, probably the greatest commodities trader of all time. But he said, you know, nothing is going to change. Nothing, nothing goes to the moon without a 50% drawdown along the way. Now, that came up in the context of gold going from $1,900 in August 2011 to $10.50 in December 2015. So that was a significant bear market, but using a base of about $2.50 from 1999, that was a 50% drawdown. I mean, Rogers' analysis stuck the landing within a few bucks, so it was amazing. All I did was I took that. I updated it for a new base of around $1,800 or so a few years back, the new high of $5,400, and saw pretty much the same thing. And I said, the bottom will be at or above $3,600. That will be a very solid bottom and a turnaround. It was $3,900. That wasn't as close as what Jim Rogers and I got to in 2015, but it's okay. It was the same zip code, as they say. And we're off that. So, yeah, is it down from $4,500 to $4,300? Yeah, but the important thing is, A, that's normal volatility. B, it's nowhere near the interim low, which was $3,900. And it's forming a new base right here and will be going up significantly from there. Now, specifically, Jesse, with regard to the two headwinds you mentioned, I've written and spoken a lot about the war in Iran. I've said since March. You know, the war started, I think, last day of February. Within a matter of days, I said Iran was going to win the war. It's no detriment to the bravery of our U.S. troops and sailors and Marines and pilots. I mean, they do an incredible job executing what they're told by their commanders and ultimately the Pentagon and the White House. So, no disparagement there. But that doesn't mean you win the war. And, in fact, Iran. And Iran's goals were fairly modest. As I said, they're not invading New Jersey. You know, they're not coming ashore on the beaches of, you know, Wildwood and Asbury Park. Their goals are to survive, regime survival, which they've accomplished. You know, Trump talked about regime change. Well, we've had a lot of leadership change. We killed over 100 top leaders, religious, military, and political. But that doesn't matter because they just replaced them. In fact, the younger. These are now people in their 40s instead of their 70s or 80s. They're actually more nationalistic, more radical, more committed than even the older generation. So, you haven't accomplished anything there. The regime is still intact. They still have their highly enriched uranium. Yes, it's buried to some extent. Yes, their ability to continue enrichment has been greatly diminished but not eliminated. And, you know, give them enough time that they can rebuild all that. So, the regime is still there. The highly enriched uranium is still there. And they're in a stronger geopolitical position because they're blocking the Strait of Hormuz. In fact, they've mobilized their, I'll say, allies, proxies, if you will, the Houthis in Yemen who have gone on a rampage. They were fighting. There's a more, I'll say, established government, although not very strong, in Aden, which is the capital of Yemen. And then the Houthis who were in. In a different part of Yemen, a little further north. And they've been in a civil war for 20 years or longer. Saudis are on the side of the government in Aden, you know, et cetera. Well, the Houthis are supplied militarily and financially by the Iranians. And they've now been mobilized. They've taken the entire coast along the Bab al-Mandeb Strait, which is the choke point for the Red Sea. The Houthis control the Red Sea in the same way that the Iranians. The Houthis control the Strait of Hormuz. You don't have to interdict every vessel. I'm not suggesting they've got a Marine Corps and they go out there and board the vessels. You don't have to do that. All you have to do is blow a ship up every couple of days. That's enough to keep the traffic out because the captains, the vessel owners, the cargo owners, insurance companies, you know, and others and, you know, welfare of the crew says, why do I want to gamble on being the guy who gets blown up today? So they've basically closed the Red Sea and the Strait of Hormuz. When you close the Red Sea, you close the Suez Canal because that's where the Red Sea goes before you get to the Mediterranean. So this is a serious diminution in Marine cargoes, traffic. You know, we all know the numbers. It's 20% of world oil exports, 20% of liquid natural gas, you know, in the world, et cetera. And a lot else, you know, sulfur, helium, all which are needed as chemical precursors. And semiconductor production, again, I think most listeners are familiar with what's involved with those choke points. But Iran never did that before. They always have been talked about for 50 years, but it was never actually done. Well, now it is done and it's sticking. So that's not going to get better. That's going to get worse. You can't bomb your way to victory. You can bomb things for sure, but that will not win the war and that will not change the outcome in the Strait of Hormuz. And so the oil prices. The prices are going to remain high. They're actually a lot higher than the futures prices indicate. We can kind of, without digressing too much, the West Texas Intermediate and the Brent futures contracts, okay, they're futures contracts. They're legit. But they settle in one or two months. They're the weighted average of a whole bunch of bets in both directions, high and low. It's sort of a sigma, if you will, of speculators, hedgers. It's some wishful thinking. And that's what that price is. That is not the price of a wet cargo on the spot market. If you call, and you can do this, you can call a broker and say, I want to buy a tanker full of oil now and I want to deliver it to my refinery next week. There's a market for that and you can do that. Guess what the price, guess what that price is? It's about $140 a barrel. It's not $107 a barrel, number one. There's something called the crack spread. What's that? Well, that's the difference between the barrel equivalent of refined product, which is gasoline, kerosene, which is jet fuel and diesel, and crude oil. Normally, the crack spread is about $20 a barrel. So if oil is, say, $100 a barrel, the barrel equivalent of, you know, it's called a barrel of diesel fuel would be about $120. of hours a barrel. Well, the. The barrel equivalent of diesel right now is about $180 a barrel. So if we work backwards and say, okay, it's $180 a barrel equivalent for diesel, which is the main fuel. That's what drives all the trucks in the world. We care about the price of gas at the pump. But diesel is the cost of transportation for everything you buy, either in a store or it gets delivered to your front porch. Well, if you take the $180 a barrel and subtract a normal spread of $20, the implied price of oil is $160 a barrel, which is not far from the $140 a barrel I mentioned earlier or higher for a wet cargo on the spot market. So what both of those things, crack spreads and the wet cargo price, the spot price, are telling you is that oil is really about $150 a barrel, give or take, not the $105 a barrel you see in Brent crude. That's the price that ends up in gas at the pump and diesel. That's why diesel is so high. That's not going away, all because of what we talked about earlier, which is the status of the war in Iran. And there's no way out. Trump has no exit ramp. So taking all that into account, that is, I hate to say it, but it's extremely bullish for gold. That kind of uncertainty, the kind of inflation that's going to come from that, the market will get there. Markets are going to have to go their own way. And the other factor, and the other fundamentals, Jesse, haven't changed. Central banks are still net buyers. China is still a buyer in particular, but Russia a little less so because they've been selling a little bit because they need the dollars to basically finance the war and kind of bridge the gap with the sanctions they're under. But all this geopolitical uncertainty is very bullish. It's very bullish. It's very bullish. For gold, the inflation that's going to come, that is coming in the pipeline, no pun intended, from the oil analysis I just gave is bullish for the price of gold. So, yeah, I'm still bullish. The price is going higher. The fact that it drew down a little bit, yeah, that's normal. And it's going to go up from here.
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Speaker 2I agree with you, Jesse. You know, silver is more difficult to analyze because it's a precious metal, but as you mentioned, it's also an industrial input. So the precious metal side of it is along for the ride. Gold's going up, so silver's going up. Silver often goes up with a lag, but once it starts, it can really catch up. So silver can be, again, kind of not doing very much when gold's going up. And then all of a sudden, boom, here comes silver, like a horse that finishes strong at the, you know, starting at the top. The far turn. So, yes, that's bullish for silver. As far as the industrial input is concerned, it is possible that there could be a recession that might reduce industrial demand a little bit. But recessions are selective. Some industries are hurt worse than others. We may, you know, then query whether a recession, which is a normal cyclical event in the economy, turns into something more like a financial crisis. We may see a financial panic, which is a different thing, but they can come together, as they did in 2008. But let's not forget, silver is, yeah, it's used for a lot of things, you know, catalytic converters, and, you know, that's a little bit of a function of the auto industry, but it's used in electronics. And when you look at the demand for semiconductor chips, the backlog at NVIDIA, these hyperscaler data centers, that Microsoft and Anthropic and OpenAI and Apple and Amazon and Meta and others are building, I understand there's controversy around that. Yeah, there's always some political buzz. But the fact of the matter is you're seeing not hundreds of billions, but trillions of dollars committed to these data centers. All right, you've got to move from one place to another because the neighbors are upset, you know, so be it. But they're going ahead. One way or the other. And that all involves silver in those electronic components and circuits and wires and controls and a lot else. So I don't see, with or without a recession, I don't see demand for silver in particular easing up because of its role in electronics, which are, you know, look, it may be a bubble. I'm not saying it's not a bubble. It probably is in some ways. But bubbles don't end on demand. And they don't, just because you can spot one doesn't mean you know when it's over. And for the time being, it's not over. And so I think industrial, so you've got two vectors, but they're both pointing out the precious metal and the industrial input, particularly with regard to electronics and all the things we talked about in the data center, are both moving in an upward direction. So, yeah, I'd be bullish on silver as well.
Speaker 1Let's talk about some of the big tailwinds behind the precious metals, starting with the U.S. national debt now surpassing $40 trillion. Hard to even wrap one's head around such a big number. Yields are continuing to rise on U.S. treasuries. We've recently seen the 10-year note hit 5%. I believe this is the highest yield since 2007. So the cost of service to U.S. debt is getting more expensive, 20 and 30-year, both into the 5.4 and 5.6, I believe, could go up to 6%. Who knows? How dire is the situation here when it comes to the U.S. debt? And how is that providing potential tailwinds for the U.S.? You're right, Justin.
Speaker 2I mean, those are really big topics. Those are really important topics. I'll just start by saying I was around when the yield of maturity on a 30-year treasury bond was 15% back in the early 1980s. I wish I'd bought some. You could have bought a 30-year bond in 1981 that would have matured in, what, 2011 and sat there the entire time and collected 13% or 14% on a guaranteed security bond. So, you know, high interest rates are a two-edged sword. Yeah, they're tough if you're the debtor and you're paying them. But if you're the creditor and the investor, they're not so bad. So, I don't get too – I don't break out in highs when I see a 5% yield. I mean, like I say, I remember the 13%, 14% days. I'm not saying that's a goal. I'm just saying that, you know, as an investor, you know, you can lock in some high yields for a long period of time. But let's kind of disaggregate that a little. My problem is those are really important topics and they require really good analysis. And we're not hearing good analysis from most commentators. You got a lot of people – it's funny. When I started commenting a little more publicly about gold around 2009, 2010, even before my first book came out, that was in 2011, there was a crowd. I'm not going to mention any names, but there was a crowd. And they were all like, gold, gold, gold, you know. And then when the bear market started in 2011, but it continued. It was really bad all the way to 2015. Like I say, it went down 50% from the 250 base. All these people disappeared. They started talking about Bitcoin or else. And I thought to myself, you're kind of a bunch of phonies. I mean, you're like – you're riding the wave. I get it. And I'm not – you know, if you make a living, whatever, I don't care. But you don't really understand it. And you're not really an analyst. You're just sort of a fear monger or a cheerleader. Well, a lot of them are back, you know, because this one up to – as of last week. January up to $5,500. So I hear a lot. Again, I'm not going to mention names, but some of the analysis I hear is just ridiculous. The end of the dollar, the bond market's falling apart. Here comes the BRICS global reserve currency and all that stuff. None of that stuff is true. So let's disaggregate a little bit. So is there selling pressure on bonds? Bear in mind for every seller, there's a buyer. Somebody's out there buying these things with a 5% yield. Yeah, but look at it from the point of view of a reserve position in a major country. And I think Japan is sort of front and center because of the unwind of the yen carry trade. When you see yields going to, well, 5%, that's where they are, a little bit higher, the superficial analysis is everyone's dumping treasuries. They're getting out of the dollar. It's the end of the dollar. Well, first of all, and Yeah. It's the end of the dollar as a reserve currency. First of all, reserves are not currencies. They're securities. And there's a difference, a big difference. I mean, the security is denominated in a currency. Yes, I get that. And that's kind of what people mean, but they're not careful about the distinction. People's Bank of China does not have pallets of $100 bills in the basement. What they have are US Treasury securities. So does Japan, so does Taiwan and the other major parties with large dollar denominated reserve positions. But those are held in the form of US Treasury securities. When you see people selling Treasury securities, well, let me put it differently. If you want dollars, you want actual dollars for whatever reason, you have to sell the securities to get the dollars. Now, the superficial analysis is they're dumping treasuries, they're getting out. Well, they're selling them, but they're not dumping them. They actually wish they had more. But what they need are the dollars. That implies a dollar shortage. You would not be selling your treasuries and getting dollars unless you were short of dollars. Why do you need the dollars? To prop up your own currency. And that's particularly true in Japan, but it's true in China as well. These countries, Japan doesn't want the yen to fall anymore. The yen's been crashing. Well, and that's because, you know, again, this goes back to my first book, Currency Wars. You know, you say, well, gee, if your currency is cheaper, it doesn't make your exports cheaper. If people have to, you know, get, use dollars to buy Japanese exports, you know, they're going to convert to yen. If the yen is cheaper, I get more exports for my dollar. That's true to an extent, but you have to bear in mind the extent to which these countries have to import things to manufacture in order to export. You can't just look at the export side. You have to look at the import side and the components they need. And that's where the cheaper currency kills you because you need more of it to buy whatever, you know, raw materials. In the case of Japan, it's mostly energy. They have no oil. They buy it. And same thing with natural gas. Still buying from the Russians for that matter, which makes a lot of sense. So they don't want a crashing yen. By the way, what's happening? The Bank of Japan is raising interest rates. They're to prop up the currency. Well, the other way for the Japanese to prop up their currency is to sell treasury securities, get dollars. Now you have the currency and buy yen to prop up the currency. And perhaps you wouldn't have to raise your interest rates quite as high. That's a defensive gesture. It's probably a losing battle. It's why Scott Besson gave the Japanese hundreds of billions of dollars, U.S. dollars, in what's called a currency swap. I'll give you dollars. You give me yen. We'll both sit on it. We can all mind it later. But here's your dollars. Why does Scott Besson do that? He did this so that they, the Japanese, didn't have to sell treasuries. Because selling treasuries does put upward pressure on U.S. interest rates. That's what you're saying. And he doesn't want that. The U.S. government doesn't want it. They don't want it in general. That raises mortgage rates. It's not a good look heading into the midterm elections. It raises the cost of everything because it's a benchmark for financing other things, even if you're a corporate bond issue or a large commercial borrower, that those higher treasury yields are going to basically affect the interest rate you're paying on your commercial loans. So the last thing Besson wants is for the Japanese to sell treasuries to prop up the yen because that could mean, does mean higher U.S. interest rates. So he's just giving them dollars in a currency swap so they can prop up the yen on their own without having to sell treasuries. That's what's going on. And that's, you know, fairly, you really have to understand the plumbing to understand what I just said. I'm sure our viewers do. But my point is that's not the same as dumping treasuries because you're worried about the dollar. Quite the opposite. You're desperate for dollars and Besson is trying to find ways to help them avoid doing that. Same thing with the Chinese on an even larger scale. So is there upward pressure on U.S. interest rates? Yes. But that's partly because there's a dollar gap. The dollar shortage and parties are having to sell securities to get dollars to prop up their own currency. It's a very, you have to, you can't look at a yield to maturity in isolation. You have to look at the bond market, the currency market, what's going on with reserve positions. What does reserve position mean? It doesn't mean currencies, it means securities. And you've got to sell them to get currencies to prop up your own. That's not a flight from the dollar. If anything, you're trying to prevent a flight from your own currency. So, so I guess, I guess the short answer is, yeah, yields are going up. They may go up more, but it's really important for the viewers to understand why that's going on and what it means. And what it does not mean is the end of the dollar or the end of the bond market. What it does mean is that there's a dollar shortage and people are desperate for them. And, and the treasury is trying to help Japan anyway, so that they, they don't have to sell U.S. more treasury securities.
Speaker 1You're right. There has been a lot of sensationalism online about yields rising and an idea that the bond market's about to break and that it's going to melt down. And of course, if this is bearish for the U.S. dollar, the picture you paint is quite different. And you're also correct on the calls for hyperinflation, the dollar's going to die, BRICS currency. You know, this is a very gold bug fantasy type of mindset. And perhaps there's a grain of truth to it, but I just wonder what your thoughts are on where we are in the future. the life cycle of the U.S. dollar right now, because of course, the gold bug argument is, well, 100% of fiat currencies fail over time. And the reserve currency status has changed throughout history. And at some point, it's going to change again. How do you view that? And where do you see that paradigm when it comes to the U.S. dollar today?
Speaker 2Well, reserve currencies do fail over time, but time can mean two, three, 400 years. So let's not get ahead of ourselves. The dollar has been in the. Dominant position it's in. I would say beginning in 1944 with Bretton Woods. And there was a transition. So if you went back to 1913, just before World War I, there'd be no question that pound sterling was the dominant global reserve currency. Again, to be clear, you don't have currencies, you have securities. You would have bought British sovereign bonds denominated in. Dominant in pound sterling. Or you would have bought gold. But the sterling was called the dominant currency in 1913. By 1914, it was the U.S. dollar. That period. Sorry, 1944 was the U.S. dollar. That period between 1914, the beginning of World War I, and 1944, Bretton Woods close to the end of World War II. That 30-year period, that was a transition away from sterling towards the dollar. It was kind of a race. Sometimes sterling was ahead. Sometimes dollar was ahead. You had a major sterling devaluation in 1931. You had a major dollar devaluation in 1933. You had the tripartite agreement among Britain, France, and the United States in 1936. And then eventually you got into World War II. Everybody froze everything. There was no gold moving around and no real foreign exchange trading. So you have to look to the formation of the Bank of England, Sir Isaac Newton, and other elements at the time. And it was a mercantilist system. You didn't pile up foreign sovereign bonds. You piled up gold. In the case of the Chinese, they were actually more interested in silver, believe it or not. But that's how you put your reserve position was in gold and silver. And then you used that to back your currency. But my point is if you want to pick— You know, 1700 for a date is a little bit arbitrary, but, you know, 1700 to 1945, well, that's, you know, 245 years, you know, pretty good run for sterling. And so by that measure, the U.S. is still – the U.S. dollar is still kind of a teenager. So my point is they do change over time, but, you know, I don't see any evidence that that's on the horizon. Now, you hear a lot about the BRICS currency. Again, this is another one of these hyped-up, scaremongering – you know, people do it for headlines and clicks. I get all that, but I don't do it because it's not what I do. You know, you have to really understand the system, and you have to do good, solid analysis. That's what readers and viewers care about. And, you know, as far as that's concerned, the BRICS – well, they just had their summit meeting. It was in Delaware. They have a rotating presidency. Last year it was in Russia. This year it's in India. Next year it's in China. And the country has the president of the BRICS each year. They did not announce a BRICS currency, a BRICS global currency or anything of the kind. They're not even close to that, and I don't think they will be maybe ever. There is no – There's no significant position of anything BRICS-related as a so-called global reserve currency. Why is that? It's not really about the currency. As I said, it's about the bond market. When you invest your reserves – reserves is like a savings account. Like if you make a certain amount of money and you spend a certain amount of money and you have something left over, you put it in the bank. Or you can put it in a brokerage account or buy a money market fund or buy a house, do whatever you want. But that's your savings, if you will. It's no different for a country. You pay for a lot of imports. You make money selling exports. If you have a trade surplus, that goes into a reserve position and you have to decide what to do with it. And the best thing or what most countries do is invest in U.S. Treasury securities. Well, let's say you wanted to get out of treasuries and get into Chinese Yuan. That's your goal. You know, is there a Chinese bond market? No, not one of any significant size. There are some provincial debt markets. There isn't. There is a Chinese government bond, if you want to go find one. Good luck, by the way. They have exchange controls. The market's not that big. It's not liquid. They don't have a lot of maturities. They don't have a system of primary dealers to run auctions. They don't have hedging instruments. They don't have futures, options, when issued trading, settlement, clearance. And above all, they don't have the rule of law. Do you actually trust the Chinese? I don't. I don't even buy Chinese products because they fall apart. So my point being, you. You can't just, like, snap your fingers and get a bond market. That takes. And by the way, I was, you know, on the executive committee, one of the largest dealers in U.S. government securities at one stage of my career for 10 years. We talked to the Fed every day. We talked to the open market desk at the Federal Reserve Bank of New York every day. That's what being a primary dealer means. When you're a primary dealer, you're on a short list of banks that actually trade with the Fed. The Fed doesn't trade with everybody who calls up. They have approved dealers, about 20. My firm was one of them, one of the biggest. And so I just have a lot of insight as to how that all works. But my point being, there is no equivalent in China or Russia. The only other bond markets that are a little bit comparable would be Germany, Italy, and Japan, and a little bit in sterling. But even those are not that big. The Euro-denominated. And when people talk about Euro-denominated bonds. Okay, that's important as far as the Euro is concerned. But there's no one Euro bond issuer. These are issued by the Deutsche Bundesbank. They're issued by the Bank of Italy. Not sterling. That's different. But they could be issued by Spain or France. I haven't helped you with France. But nice country, but I wouldn't rely on their bond market. But my point being, even the Euro position. In the charts you see, like here are the global reserve currencies, they're not currencies, they're securities. Let's get that straight. But we see a slice for the U.S. dollar, it's about just under 60%, about 59%. But the Euro is about 28%. So the Euro and the dollar together are over 85% of global reserve positions. Couple of things. Everyone else just has a slice. Sterling, yen, Swiss francs. Chinese yuan. Canadian dollar. Australian dollar. New Zealand. They have a little slice, 1%, a little bit larger in the case of yen, but not much. But even the Euro slice, which I said is about 28%, give or take, you got to subdivide that into Germany, Italy, they're the two big ones, and maybe Netherlands, France a little bit. Even that's not a unified bond market. The only one is the U.S. Treasury market. Banks don't have a bond market. They don't have a big position in the global reserve pie chart, and they're not going to because they don't have all those other things I mentioned that you need, particularly the rule of law. By the way, the U.S. is eroding its own rule of law by freezing the U.S. Treasury securities owned by Russia. Those treasury securities, about $300 billion worth, they've all matured by now. By the way, this freeze goes back to 2022, so that was going on five years ago. Most of them have matured because they were short of maturities, so it's just a big pile of U.S. dollar cash sitting in a custody account at EuroClear. But they were lawfully acquired by Russia. Russia sold oil, got dollars, took the dollars, bought U.S. Treasuries, kind of relied on the U.S. rule of law, put them in a custodian in Europe, which I'm not sure there were too many other good choices, but that custodian then froze them, and now the U.S. is in the process of stealing them along with the European countries, obviously because of the war in Ukraine. Well, that doesn't do a lot to inspire confidence in the U.S. rule of law. I said the other countries couldn't compete because they don't have a good rule of law, and that's true. I would think, if anything, the U.S. would be a little careful about that. I mean, financial warfare works, but it comes at a cost, and the cost is countries sitting there saying, "Huh, you don't like Russia, so you froze their treasuries. Well, I got $500 billion worth of treasuries. What if you don't like me someday? My policies or whatever, you're going to freeze me." Well, that's actually incentive since there aren't other bond markets, and we talked about that. That's an incentive to buy gold because it is physical. You put it in your own vault. Don't put it in New York or London, and you can't freeze it, at least not digitally. I mean, you have to invade the country and steal the gold. We do that too. I mean, we took Libya's gold, and I don't know where that is, probably a NATO base in Italy somewhere, and just saying, and Venezuela's gold. We're hoovering up a lot of gold around the world, but short of that, your gold is safe if you have it in your own custody. So again, this is kind of bullish for gold. What the BRICS did do, and this is significant, they're working on payment rails. They're working on bilateral payment rails. So Russia sells some energy to China, and China can pay them in yuan, and China sells some semiconductors to Russia, and Russia can pay them in rubles. Same thing with India. India's buying a lot of crude oil from Russia because India has refineries, believe it or not. And when they refine product, they can sell the refined product to China or elsewhere, get paid in yuan. So rubles, yuan, rupees in India, Brazilian and some of the other currencies, they can now pay each other in those currencies using their own payment channels that are secure and encrypted without having to go through the SWIFT system or Fedwire or ACH or any other dollar payment system. Well, that's a big deal. And you insulate yourself from freezes and seizures and the kind of economic sanctions I just talked about. But it's all about payments. That's not a reserve position. Those are not securities markets. That's not the end of U.S. Treasuries. It's an alternative payment system. And what's it in? It's in rubles and yuan. Well, if you're Russia, how many Chinese noodles do you need? If you're China, how much Indian curry do you need? I mean, when you start to pile up these local currencies, you're China, you got a bunch of rupees. All right. I mean, like I say, India's got some very attractive exports, including refined product. But there are limits, particularly if you're the big surplus country, which China is. Using what I just described, they're going to pile up a lot of, again, rupees and rubles and Brazilian and other currencies. Here's the dirty little secret. What do you do when you get all that stuff? You call your foreign exchange broker and sell it and get dollars. Now, they don't advertise that. But at the end of the day, they want the dollars. That goes back to what we talked about before. So is it an impressive technical accomplishment? Yes. Does it insulate them to some extent from U.S. sanctions? Yes. It's not a bad thing. It's a step in the right direction. But it's not a reserve currency. It's not an alternative to U.S. treasuries. It's not the end of the dollar. So again, there are significant developments going on in the world, Jesse. But I'd like to analyze them without the hysteria and the doom-mongering, so to speak.
Speaker 1I know you've made some pretty big predictions for where the gold price is headed in the future to around $20K or above. I talked to Matthew Peipenberg on the show recently. And he said that if gold got to $20,000, whether that was through the market naturally getting there or through the U.S. actually revaluing the gold to that $20,000 level, which he thinks is less likely, that it would actually go a long way towards addressing the debt issue, at least in the near term. Do you see any of that as a realistic proposition? Because, of course, we know that the gold on the Fed's balance sheet at present is something like $42 an ounce. If they mark to market, it's kind of still a drop in the bucket. But if we are at $20K gold, do you think that could actually make an impact?
Speaker 2Yes. And let's separate the mark to market that you just mentioned on the one hand from the impact on fiscal policy. One and the other, they're both important. But just to talk about the mark to market a little bit. So, yeah, in 1934, Gold Exchange Act of 1934, the FDR, well, it was approved by the Congress, which really ratified more radical things he did by executive order in 1933 after he became president. But they basically took the gold from the Federal Reserve System and gave it to the U.S. Treasury. So if you say… You said to me, who owns the U.S. gold? The legal answer is U.S. Treasury, although it's roughly divided equally between Fort Knox and West Point. So I would say the Army controls the gold because they're both Army bases. But legally, it's the U.S. Treasury. Well, okay. But as we know, the Federal Reserve System is privately owned. Now, it's like a quasi-government entity. The president appoints the governors. It's approved by the Senate. They're based in Washington. Yeah. But it's a system. It's a system of 12 banks, 12 regional Federal Reserve banks that are owned by the banks in those different districts. You know, Citibank, Wells Fargo, J.P. Morgan, et cetera. They own the Fed. So it's a private entity. Now, under the U.S. Constitution, the Fifth Amendment to the Constitution, if the government takes private property for public use, they must give fair compensation. They can do it, but they need a purpose and they need to pay for it. So how did the Treasury pay the Fed for the Fed's gold that they took in 1934? The answer is they gave them a piece of paper. It's called a gold certificate. And it's on the Fed's balance sheet today. It's a public document. You can go to the Federal Reserve website. You've got to hunt around a little bit. But find the balance sheet. Look at the asset side. It's the first line item, gold certificate. And it has a dollar value associated with it. Okay. What's that dollar value? Well, it represents a physical quantity of gold. Value at $42.22 per ounce. And that's the dollar amount on the balance sheet. So this is like fifth grade math, but all you have to do, at least when I went to fifth grade, but take the dollar amount, divide by $42.22 an ounce, or just $42.22. And that will give you the number of ounces represented by that gold certificate converted to metric tons. It's, I think, 35,000 ounces per metric ton round number. Guess what? You come out about 8,100 metric tons. How much gold does the U.S. have? 8,100 metric tons. In other words, that syncs up. And that's significant, in my view, because it suggests that the U.S. Treasury can't sell any gold without violating that contract, that backing, if you will, for the gold certificate. This isn't written down anywhere, but it is what happened, and it is the law. Because the U.S. did sell a lot of gold. Even after Nixon went off the gold standard for foreign trading partners on August 15, 1971, the U.S. continued to sell gold throughout the 1970s in sync with the IMF. They were dumping gold to keep the price down, and they sold about 1,000 tons. And then right around 1980, they stopped cold. Why was that? Why didn't they keep selling gold? Well, in my view, it's because they got to a number that synced up with the gold certificate. And they couldn't. They couldn't sell anymore. That's a big deal, because it means that the U.S. cannot manipulate the price of gold by selling more gold, because we're legally bound by the certificate. Now, let's come back to the certificate. Could you revalue it to today's market, $4,300 an ounce, or higher, potentially? The answer is yes. And, by the way, it's been done before. It was done in the 1950s, under President Eisenhower. Congress went home, they adjourned, and they forgot to raise the debt ceiling. And so it's like, oh, now the Treasury's like, now what do we do? We're out of money. And so what they did, they did something slightly different. They asked the Treasury, sorry, they asked the Federal Reserve to allocate more gold. Sorry. They asked the, yeah, they asked the Federal Reserve to allocate more gold to the U.S. to the gold certificate. And when they did that, they could write up the value by that amount, and then put the money in what's called the TGA, or the Treasury General Account. So they did that. It was an accounting entry. It gave the Treasury more money so the government could pay its bills until Congress got back and raised the debt ceiling. So it has been done before, and it's really just a phone call and an accounting entry. What's the, but I don't think it's a small thing. If you, I've done the math. If you take the number of ounces backed by that gold certificate and revalued it to $4,300 an ounce, or higher, but just take $4,300 an ounce, that comes to about $1 trillion. And that money would be available to the Treasury without issuing any new bonds. So, you know, the Treasury can always get cash by selling bonds. We know that. And then that's a question of interest rates. Okay, we talked about that. But here's a way for the Treasury to get $1 trillion in cash in their bank account. At the Fed, that's where the TGA is. It's the Treasury's bank account at the Fed. $1 trillion in cash without issuing one new bond, without issuing any debt. So if you ever did confront one of these debt ceiling, like phony crazies or whatever, that would be one way to do it. You could just do it on a sunny day. You don't need permission. It's just a phone call from the Treasury to the Fed. So $1 trillion is non-trivial. Why don't they do it? In my view, it's not. It's political, meaning the minute you do that, you're saying, hey, gold is really valuable as a monetary asset. They don't want to say that. It is. Of course it is. Why do we have 8,100 metric tons if it's not worth anything? Or why does these round numbers, why do France and Italy and Germany have approximately 3,000 tons each? Why does China have just under 3,000 tons that they admit? Maybe another 3,000 tons stashed away at the State Administration of Foreign Exchange off the books. What's up with all this gold if it doesn't have any value? Well, the answer is it has enormous value and it is a monetary asset. And that's why they have it. They just don't want to admit it. So to do what we just talked about with marking up the value of that gold certificate would be a bow in the direction of gold, saying gold really is important. They don't want to say that because it has all kinds of other implications. Now, by itself. It wouldn't affect the market price. Everyone's like, oh, gold's going to go to the moon. No, not necessarily. I mean, I think it would be bullish, by the way, for the reason we just mentioned, which is they're basically admitting that it's an important financial asset and plays a role in the monetary system. But by itself, it's just an accounting entry. It would produce a trillion dollars of cash out of thin air, as we just discussed. But it just psychologically, I think, would be bullish. I think it would be bullish. It would be very, very bullish for gold. Now, could you mark it up higher? You know, if gold's 4,300, could you call the Fed and say, hey, mark it up to 10,000? The answer is I don't know. That's never been done. I don't think so because, you know, I mean, the Fed, they actually have accountants. You know, what's the big accounting firms these days, you know, I don't know, Pricewaterhouse or whatever. What would they say about it? And they audit the Fed. And the Fed does get audited, by the way. Everyone's like, they never audit it. Yes, they are. They have financial statements. So I don't think the accountants would support a crazy valuation, but they would support a market valuation, and they have before. So that is actually a very big deal. But you could pull a trillion dollars out of thin air without issuing any debt.
Speaker 1Now, you're an investor in Callfort alongside Robert Kiyosaki. This is an application that helps stop scam calls. You've talked about it with us before. So what has changed since then and where do you see call for fitting into the fight against this new generation of phone scams?
Speaker 2Yeah, Callfort is a great application of what I talk about in my book, Money GPT. It's my most recent book. Money GPT is about AI, but in particular, the impact of AI on capital markets, the banking system, and I actually have a chapter on nuclear warfighting. And at the end, I talk about superintelligence and all the things we're hearing about today. But Callfort uses AI. Other than the founders and the team, the two initial outside investors are myself and Robert Kiyosaki. I'm sure all of your viewers know who Robert is. He's the best-selling personal finance author of all time, Rich Dad, Poor Dad. A lot of people may have read his book. He's kind of a global celebrity, really good guy. Good friend. Robert and I put money into the company. And when I did it, I talked to the CEO and I said, okay, here's the deal. I'll be your first investor alongside Robert, but on condition that I be your first customer, because I want this app. This is really a lifesaver. So I'm just in a position, for whatever reason, I can't ignore my phone. I wish I could. I wish I could throw it away sometimes, but I can't. I need it. If it's in the next room and it rings, I got to go to the office. I need to get up and run in just because I can't miss certain calls. Well, I was getting bombarded with spam calls. And every time I got one, now the AT&T and Verizon, T-Mobile, they'll tell you it's a spam call. They say probably spam or it looks like spam or whatever. Thank you. But it just rang. It rang anyway. I ran into the next room. I got to get rid of it, delete it. It's just a pain in the neck. What Callfort does, it goes way beyond that. That call doesn't ring. It doesn't get through. And there are a couple of ways that this happens. One is they'll take all your contacts, and that's the beginning of a whitelist. Whitelist is those calls are good. You wouldn't be in your contacts if it wasn't good. They'll take people that you call, whether they're in your contacts or not, and put them on the whitelist because why would you call them if they were spam? Well, you wouldn't. But this is where the AI comes in. They have a whole network now of clients. And if over here, somebody's on a whitelist with a bunch of other clients, this is a good call. This is a good call. This is a good call. This is a good call. This is a good call for all these people. Well, they'll put that on your whitelist too, because it's sort of AI will show that that's a good call. Same thing with the blacklist. You can blacklist calls on your own, but the AI behind Callfort, what they do, they go out, they don't just play defense. They go on offense. They go out and scan the scammers and the spammers, and they identify them, and they penetrate their networks and get all their contacts. And that's a good call. Put them on a blacklist. And likewise, if there's a spam call coming into somebody else, they'll put it on your blacklist because spam is spam. So again, by having a network, by using AI in the way I described, it works really, really well. My phone doesn't ring with spam, period. And it's actually made my life better. This is not just a convenience. Well, I mean, it is a convenience, of course, but it's improved the quality of my life because I get enough on my plate without kind of chasing my phone. And I don't have to worry about it. I don't have to ring up to the phone. And if somebody calls you and they're not on the blacklist, but they're not on the whitelist either, it looks okay, but they don't know. There's no reason to think it's suspicious. They put up a little challenge. They'll say, if you want to talk to Jim Rickards, push 27. No big deal. You push 27. You get through to me. That's that. But a robot can't do that. That's the point. So they have what they call the challenge, but it's one that's easy for a robot to do in real time. And then they change it up. It's brilliantly done. Callfort. And by the way, this isn't some pitch book company. This is on the Apple store, on the Apple app store right now. Just go to Callfort, one Lurz, C-A-L-L-F-O-R-T, Callfort. You'll find it. You can download it and it will change your life for the better. It's a really cool app. It started out great and it's getting better. It's definitely improved my lifestyle.
Speaker 1Great. Well, also tell us about MoneyGPT. That's your latest book. And anywhere else people can go online to follow your work. I know you have a letter as well. You've got an X account. Where should people go who want to follow you?
Speaker 2Thanks, Jesse. My X account, formerly Twitter, now X, at RealJimRickards, R-I-C-K-A-R-D-S, all one word, at RealJimRickards. When I do interviews like the one we're doing and others, I'll post them there. And so people can have access to that. So at RealJimRickards. My flagship newsletter is Strategic Intelligence. My publisher is Paradigm Press. So if you just Google Jim Rickards Strategic Intelligence or Jim Rickards Paradigm, you'll find the landing page without difficulty. We welcome people aboard. And then finally, my book, MoneyGPT, bestseller, available on Amazon. That was my book on AI. I have one chapter on capital markets, how it could affect the stock market meltdown. Another chapter on the banking system. And then a chapter on nuclear war fighting. I also wrote about Bitcoin and people have been chasing me for, I've been in like 15 gold versus Bitcoin debates. I won every single one until recently, I lost one to James Aldrich. James is a good friend, brilliant guy. James was the, Bitcoin guy. I was the gold guy. But what was interesting, we did this in Nashville last October. And in the three, in the three months after that debate, I saw that they were holding up paddles, you know, gold versus Bitcoin. It was, it was all kind of fun and fairly done. But when I saw that I lost just by kind of scanning the paddles, I said to myself, I didn't say this on the stage, but I said to myself, that's a top because it was a very gold friendly crowd. And they love Jim, James Aldrich. Sure. But yeah, I had a lot of fans. I said, if I lost, that's a top because my audience kind of just like going to Bitcoin thing. And Bitcoin probably went from $100,000 to $60,000 and gold went from 4,800 to 5,400. So it was, it was a good contrary indicator if you want to put it that way. But, but I wrote about Bitcoin in one of the chapters and importantly, at the end of the book, I talk about superintelligence. Superintelligence and artificial general intelligence. Those are two phrases for a world where humans are to computers as gorillas are to humans. In other words, they're intelligent and they can make tools and stuff, but they're not on the same level that we humans would be subordinate to the computers, to the artificial, to the, you know, superintelligence systems, the superintelligence systems could actually get together and control the world. So there's a whole science to that. And, you know, Sam Altman, who it strikes me as a bit of a promoter, as a technologist, they keep talking about it, but they're, they're hyping their IPOs for open AI and anthropic. But I explained why that won't happen. It's not the same as saying the whole thing's a bubble. It probably is, but that's a separate analysis. But I explained in some detail, uh, to the history of philosophy and, um, human nature and cognition, why we will not get to superintelligence. So it kind of ends on a happy ending if you want to put it that way, but a money GPT. And again, I hope people enjoy the book.
Speaker 1Absolutely. I'll put links to your ex account money GPT, as well as your letter in the description below. So people can check that out. James, as always fantastic insight shared. Thank you so much for coming on the show. Thanks. Thank you for joining us. Joining us today on commodity culture, earn up to a 4% annual yield on your physical gold paid in gold ounces through monetary metals, go to monetary dash metals.com slash commodity to find out how to put your gold to work for you. Link is in the show notes below.
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