While many are looking out for the possibility of a stock market crash in addition to a global financial crisis, the Dutch National Bank (DNB) is already preparing for a total system meltdown. Tuur Demeester, founding partner of Adamant Capital, took to Twitter to share a screenshot of a DNB document that offers a solution to a doomsday situation using gold.
The reason for the posting of the document appears to be revealed in the highlighted area. According to Twitter user Stebbing Heuer, it translates to:
Shares, bonds and other securities: there is a risk to everything [..] If the whole system collapses, the gold stock provides a collateral to start over. Gold gives confidence in the power of the central bank’s balance sheet.
Does the DNB know something that the general population is not aware of? Investment manager Lawrence Lepard says they might. According to the trader,
They can see the inevitable math which suggests that today’s system is broken and is going to collapse soon.
On top of that, our research reveals that the DNB is onto something. After all, the U.S. dollar’s status as a global hegemonic currency is in danger due to a global dollar shortage. In addition, the Federal Reserve is driving the value of the dollar to the ground with large scale asset buying and repo operations.
Central Banks Were Net Buyers of Gold Since 2010
After the Global Financial Crisis of 2008, it appears that central banks around the world shifted their stance on gold. Many turned from net sellers into net buyers of the precious metal since 2010. The gold buying activity seems to have reached its apex in 2018 when purchases skyrocketed to 651 tonnes, which is a level not seen since 1971.
Thus, it would make sense for the Dutch National Bank to assert gold as the possible new global currency reserve. This is especially true if you consider the fact that the Netherlands is one of the countries with the largest gold stockpile.
In addition to that, the risks that the DNB referred to in its document appear to be rising. Geopolitical tensions such as the U.S./China trade war as well as the devaluation of the U.S. dollar appear to be pushing central banks to diversify their assets. The latter appears to have more weight now that the Fed restarted a new form of quantitative easing.
The USD’s Sinking Value
In general, gold has a negative correlation with the U.S. dollar. The value of gold rises at the expense of the greenback. For the gold bugs out there, you should rejoice because according to Eric Pomboy, president of Meridian Macro Research, the USD has lost 87 percent of its value since 1967.
It appears that the Fed’s latest moves are not bullish for the U.S. dollar. The central bank announced that it will buy $60 billion worth of U.S. Treasuries per month.
In addition, the Fed will continue to support the repo market. Most recently, the central bank pumped $87.2 billion into the overnight lending market.
According to Wall Street Veteran Caitlin Long, the Fed’s latest moves are forcing other central banks to look out for themselves. With the indiscriminate money printing of the Fed, central banks around the world have very little choice but to diversify in gold.
It’s possible that the DNB is not actually preparing for a total collapse. They may be simply hedging against the U.S. dollar that’s losing its value.
Last modified: September 23, 2020 1:09 PM