Foreign central banks now own more gold than US Treasuries for the first time since Nixon gutted the dollar, setting off the decades-long central bank fire-sale of gold.
Is the end nigh for paper money and it's last man standing, the greenback.
What's causing the gold rush is two things: the political weaponization of the dollar and the catastrophic buildup of federal debt with -- after this year's Big Beautiful Bill -- no end in sight.
So first the numbers.
Covid and Gold
Going into Covid, in December of 2019, the world's central banks held roughly a third of their reserves in US dollars, and just 13% in gold.
And then came Covid, which took annual deficits from under a trillion to 3 trillion a year in 2020 and 2021.
That bumped gold from to 14% on the eve of the Russian invasion of Ukraine. To which the Biden adminstration responded by freezing Russia's central bank dollars -- something we hadn't even done at the height of the Cold war.
This put countries around the world on notice that their dollars -- which had been considered good as gold -- were, in fact, vulnerable to confiscation if America didn't like you.
At one major summit, the President of Indonesia said it out loud, pushing diversification because "Look what happened to Russia."
$3 Trillion Deficits
Meanwhile, of course, those 3 trillion deficits and the near double-digit inflation they caused led to a flood of gold buying by central banks as insurance.
As one senior Dutch central banker put it, "If everything collapses, the value of gold skyrockets."
In fact, in the past 3 years central banks have bought more than a thousand tons per year -- pre-Nixon it was more like a hundred tons per year. Led by China and Russia, but also Turkey, India, Poland, gulf Arabs.
This all took gold's share to 22% -- nearly double in 5 years.
And it took the dollar down to just one fifth.
Beyond central banks, the greenback is in decline across the board. Its share of world trade is now under 40% -- down from 52 ten years ago. It's share of total global reserves is under half, down from 73%.
A move Morgan Stanley currency guru Stephen Jen called "stunning."
What’s Next
While the dollar's in decline -- and gold's on the march -- the dollar's not dying tomorrow.
Because network effects in currencies mean even if paper money is dying, the US dollar will get stronger on the way.
Effectively, the strongest paper money absorbs currency demand from weaker currencies like a giant money Borg.
The healthiest horse in the glue factory.
The dollar’s relative strength is bolstered since the much-hyped BRICs currency has now degenerated from gold-backed goliath to goofy currency basket, while China struggles to buy its way out of Trump’s tariffs with trillions in fresh debt.
Indeed, the dollar's lost almost 90% of its value in gold since 1996, yet it's value in other currencies -- the so-called Dollar index — is actually up.
In other words, gold's rise isn't a dollar crisis. It's a paper money crisis driven by government debts.
It won't break tomorrow. But with trillion-dollar debts now permanent, gold will keep replacing dollars — and paper money.
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Money quote: “The healthiest horse in the glue factory.” Nice.