🔴 What Moves the Price of Gold & China's Role In It (w/ Luke Gromen & Brent Johnson)

TL;DR

The conversation focuses on the role of gold in the global economy, discussing its importance during sovereign debt crises and China's use of gold as a means to gain credibility for its currency, the yuan.

Transcript

BRENT JOHNSON: So Luke it's a great opportunity to be here with you at Real Vision headquarters. I'm especially looking forward to it because I cannot tell you how many times I will meet people at conferences or talk to them on the phone or they'll send me an email, and they'll say, I saw you and Luke Gromen on Twitter talking about-- so it seems l... Read More

Key Insights

• 🌐 Gold is crucial during sovereign debt crises, representing a safe-haven asset when global economic cycles collapse due to excessive debt.
• 🏅 China uses gold as a means to gain credibility for the yuan in commodity trading and has set up a system to facilitate gold as a treasury bond settlement instrument.
• 🏅 The gold market has not been a true market since 2013, with physical demand and supply becoming detached from paper contracts and price movements.
• 🦔 A weaker dollar benefits those who are short on the currency, providing a natural hedge and stimulating spending and economic growth.
• 🥺 If the dollar weakens significantly, it could lead to a global recession, impacting countries heavily reliant on the US as a major customer.
• 🇨🇳 China's ability to pay off its debt depends on its economic growth or the possibility of default.
• 💨 Gold serves as a governor on how far and fast China's renminbi can fall against the dollar, as it represents a hedge against both currencies.

Questions & Answers

Q: How does Luke Gromen view the role of gold in the global economy?

Gromen believes gold is essential during sovereign debt crises and sees current global conditions as indicative of such a crisis.

Q: What is China's use of gold, according to Luke Gromen?

Gromen explains that China leverages gold to gain credibility for the yuan in global commodity trading, rather than backing the currency with gold.

Q: Why did Brent Johnson shut down his gold fund?

Johnson explains that the expenses of the gold fund became too high and that he was unable to raise additional assets due to the bear market for gold.

Q: Will gold leave China if it is exchanged for yuan?

Gromen clarifies that gold can leave Hong Kong, Dubai, or the Shanghai Gold International Board, but once in mainland China, it remains there due to China's gold strategy.

Summary & Key Takeaways

• Luke Gromen believes that gold is crucial to own during the 1% of the economic cycle when global sovereign debt bubbles occur, which is currently happening. He also highlights China's use of gold to support its currency and gain credibility for yuan-based commodity trading.

• Brent Johnson shares his experience of being a gold advocate and the challenges of managing a gold fund. He discusses the impact of fund expenses and how he made the difficult decision to shut down his gold fund.

• The conversation moves to the relationship between gold and the dollar. Gromen believes that gold is not a true market and that its value is influenced by physical demand, primarily from China. They also discuss the potential effects of a weaker dollar on the global economy.

• Johnson raises questions about China's strategy of allowing gold to be exchanged for yuan, questioning the impact on the yuan's value and China's ability to pay off its debt.