Gold glitters as the unimaginable becomes imaginableThe US president wants to weaken the dollar while preserving its exorbitant privilege
Another week, another record high for the gold price. Cue wild celebration among goldbugs — and frantic speculation from everyone else about the reason for the explosion in demand for the precious metal. Geopolitical turmoil is one obvious explanation. Inflation concerns amid insane tariff dramas is another. However, there is a third, less noticed, issue bubbling away too: some hedge fund contemporaries of Scott Bessent, the hedgie-turned-US Treasury secretary, are speculating about a revaluation of America’s gold stocks. Currently, these are valued at just $42 an ounce in national accounts. But knowledgeable observers reckon that if these were marked at current values — $2,800 an ounce — this could inject $800bn into the Treasury General Account, via a repurchase agreement. That might reduce the need to issue quite so many Treasury bonds this year. This week such chatter intensified after Bessent both pledged to “monetise the asset side of the US balance sheet” — in other words, to focus on assets as much as liabilities — while also promising to lower 10-year Treasury yields. “Re-marking . . . to current market value would mechanically deleverage the US balance sheet,” says David Teeters, of IESE business school, who notes that if gold prices keep rising, this potential blessing swells. Or as Larry McDonald, a libertarian analyst, notes: “It is time to get creative around . . . Uncle Sam’s balance sheet.” Will this ever happen? I don’t know. Nor, I suspect, does Bessent, since it is the ever-capricious Donald Trump who sets policy. But the fact that this wild speculation is swirling underscores three key points. First, investors know that Bessent has an incentive to be creative, given the scary fiscal hole. House Republicans are mulling a massive tax and spending bill that would add “up to $5.5tn of net primary deficit increases” and “boost interest costs by about $1.3tn over the next decade” according to the Committee for a Responsible Fiscal Budget. That could spark bond market alarm this spring, if not a Congressional revolt from populist nationalists. And that hole cannot be plugged just by smashing a tiny agency like USAID (a grotesque move), or letting Elon Musk halt federal payments (also outrageous). “While there are potential cost savings, the only way to create fiscal responsibility is with substantial tax increases,” argues Robert Rubin, former Treasury secretary. Second, Bessent needs currency tricks as well as fiscal ones. As JD Vance, the vice-president, told Congress last year, Trump’s cabal considers the dollar to be wildly overvalued — to the degree that it is hollowing out the country’s industrial base. They attribute that to its reserve currency status. But while they would prefer a weaker currency, Trump also wants to retain that global dollar dominance and Bessent himself knows that tariffs will probably strengthen its value. That makes their policy seem bizarrely contradictory. But some market commentators, such as Luke Gromen, think the contradiction could be resolved if the Treasury tolerated, or enabled, gold to keep surging against the dollar. “Gold is likely to be a key pivot [for] the new system the Trump administration is clearly trying to engineer,” he says. Many mainstream economists would disagree, but that just illustrates the third key point: the realm of possible policymaking — the so-called Overton window — is now widening. To grasp this, look at a dense investor memo written last year by Stephen Miran, who heads Trump’s Council of Economic Advisers, which is the most thoughtful explanation of Trumpian financial economics that I have seen (echoing ideas largely endorsed by Bessent, among others). Miran argues that investors should expect tariffs to be used initially as a dramatic negotiating tactic (as they were this week). They will later be deployed as a longer term means of raising revenue and demarcating geopolitical allies. He also contends that the dollar’s reserve status and American military dominance are so tightly entwined that the White House could force countries who enjoy the US security umbrella to finance its deficit by buying very long-dated treasury bonds. More strikingly, Miran predicts that while tariffs will initially strengthen the dollar, the greenback should eventually fall, even if the White House defends its reserve currency status. How? He outlines several tactics that could be used, including “voluntary” co-operation from the Federal Reserve and a multilateral dollar devaluation accord. Such ideas might seem mad. And Miran acknowledges that the policy “path” to implement tactics like these “without material adverse consequences” is “narrow”. Quite so. “If they start playing games with a weakening dollar, that is highly risky,” says Rubin. But what Miran’s memo shows is that once-unimaginable ideas are now becoming entirely imaginable. And not just Trump’s threat to invade Greenland. Thus it is no surprise that gold is outperforming bitcoin right now; nor that traders are flying gold bars from London vaults to New York. Welcome to a financial Alice-in-Wonderland world where buying bullion seems almost sane.
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