A Looming Gold Revaluation
Soaring gold lease rates amid a scramble for physical indicate something big is coming
Gold is continuing its relentless uptrend amid surging gold lease rates and a scramble for physical metal across the globe:
Gold (4-Hour)
There is no doubt that gold is ‘overbought’ on virtually every time frame. However, this is the sort of overbought condition that is characteristic of a strong bull market - buyers have a voracious appetite and there is insufficient supply at various price levels to satiate that appetite.
The gold market is trying to find the price level that balances global supply and demand.
Besides the well established Asian demand emanating from China, India, etc. there is a strengthening notion that Trump 2.0 has plans for gold to play an integral role in the reshaping of the global financial system.
Officially, the United States holds gold reserves totaling 8,133.46 tonnes. This gold is held as an asset of the United States at a book value of $42.22 per ounce. If the Federal Reserve were to revalue this gold at today’s market prices it would create an injection of ~$800 billion into the Treasury General Account.
A February 6th article in the Financial Times explored this possibility:
“…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.”
Trump 2.0 is obsessed with reducing the US budget deficit and appears more than willing to think outside the box in order to achieve its objectives.
Two other recent market commentaries caught my attention and helped to confirm the thinking that something very important is playing out in global gold markets.
From Dan Oliver at Myrmikan Research:
“It may, in fact, serve Trump’s interest to delay and leak hints about gold because the higher the gold price goes, the more money the Treasury will be able to create on a sale, swap, or revaluation.
Heretofore the only institution that mattered with regards to dollar strength was the Federal Reserve; Trump has shifted all attention to the Treasury Department. No one cares about Powell any more. There is increasing evidence that Bessent and Trump are going to remake the financial system and that gold is going to play a role. The BRICS are already moving in that direction.
In 2012, Bernanke lectured that there was not enough gold to balance international trade—he was wrong; of course there is, at the correct price, a number very much larger than $2,900 per ounce.”
“We believe we are witnessing the early stages of a gold bull market that will run for years. The current disinterest in gold equities represents a remarkable opportunity for contrarian investors. Gold stocks will likely be viewed as indispensable assets when this bull market reaches its zenith. For now, however, the prevailing disinterest offers a golden—if undervalued—opportunity.”
Surging gold lease rates offer powerful market based confirmation that large pools of capital are striving to get their hands on as much gold as possible:
Surging gold lease rates indicate a tight physical gold market and go hand-in-hand with rising gold prices.
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