Special: Trump Will Monetize Gold's Value
Thoughts After Reading Grant's
Having read the latest excellent and thought provoking piece from James Grant, here are some original thoughts on his current newsletter’s top story entitled “Money Was On The Ballot” in context of the election and Gold’s “worth” under a Trump administration
Contents: (1600 words)
Intro: Election Day Reflections
Gold Needs A Surrogate.. or Does it?
The Dollar: From Gold Standard to PhD Standard
Gold’s Value Reconsidered
Gold May Fix Things For Us Again.
Minor Distractions
What’s it Worth to You?
Dollars in Ounces, Not Ounces in Dollars
Value not Price
Final Comment: Gold Must Be Monetized
PDF Book: Monetary Policy Under McKinley
Intro: Election Day Reflections
The title piece of the latest Grants newsletter starts out saying that “the market’s a voting machine in the short run but a weighing machine in the long run,” famously attributed to Benjamin Graham and setting the tone for understanding the unique role of gold as the article continues.
However, he correctly notes; value investors often steer clear of gold as an asset. We would only add this is a western phenomenon of late. The East has no qualms with Gold as an asset.
Gold Needs A Surrogate.. or Does it?
“Inert and unyielding,” gold does not produce yields or dividends, rendering it challenging to analyze by conventional metrics. Despite this, it remains “a store of value and a medium of exchange,” especially significant on Election Day—a day of voting in the monetary marketplace, where gold constantly bids for confidence against fiat.
He then makes his case for Gold as a surrogate, but not before taking a sardonic jab at altruistic election influencers:
Mark Cuban, surrogate to the Kamala Harris campaign, has demonstrated, a surrogate’s job is hard and frequently thankless. Say the wrong thing, and your candidate’s on the hot seat. Strike the right chord, and your candidate, victorious, is crowned with glory. Now you’re the U.S. ambassador to Greenland. Happy?
Mr. Grant without calling himself a Gold surrogate (Gold doesnt really need one he argues) carefully lays out what a good gold surrogate would have to keep in mind when stumping for his candidate.
A “gold surrogate,” he notes, though usually unnecessary for a self-assertive asset, mirrors the challenging task of maintaining a disciplined view on gold’s monetary role.
Like a campaign surrogate, one must tread carefully. “Say the wrong thing,” and confidence falters; strike the right chord, and gold finds itself recognized for its historic role in monetary stability.
Yet, as the article highlights, contemporary U.S. political and financial leaders rarely prioritize gold as a monetary asset. How can they? To do so would instantly create a competitor for both the USD and the 30 year Bond
Its essence, “the object of man’s desire,” does not resonate with modern financial frameworks that view it, following Keynes’s infamous term, as a “barbarous relic.”
The Dollar: From Gold Standard to PhD Standard
The ongoing battle between inflation-driven paper currency and the gold-backed monetary discipline reflects a history fraught with tension. Mr. Grant reminds us that the 1900 Gold Standard Act, signed by President McKinley, was intended to “end the monetary controversy” of hard versus soft currency once and for all.
President Mckinley: Gold Standard champion, Tariff Tout, and Assassin’s Target
However, as history would show, this act did not endure; successive political decisions weakened gold’s hold on the U.S. dollar.
President Franklin D. Roosevelt would dismantle the gold standard in 1933 and
President Nixon would finally sever its remnants in 1971.
From that point on, the dollar transitioned into “a piece of paper, pure and simple,” setting the stage for today’s reliance on economic theories that treat interest rates as a primary lever, the so-called “Ph.D. standard” of monetary policy.
The publisher of the Interest Rates Observer’s narrative hints at a (not so)subtle skepticism about this contemporary approach, contrasting it with the stability gold once brought. As Fed officials improvise policies based on data rather than intrinsic value, gold serves as a reminder of the limitations of a fiat-based system. Or as the poet once said:
“History shows again and again how nature points out the folly of man.” -Donald “Buck Dharma” Roeser.
Gold’s Value Reconsidered
The Federal Reserve, while slow to consider a gold standard, may one day revisit the value gold once brought to the U.S. economy. The article goes on to note the significance of Arthur I. Bloomfield’s Monetary Policy Under the International Gold Standard, (Complete Book attached in footnote1) a 1959 monograph that captures the essence of central banking under a gold regime.
Bloomfield’s description of the system’s resilience—“achieved in spite of a volume of international reserves…amazingly small”—emphasizes the stark contrast between past monetary discipline and today’s expansive fiscal approach.
Gold May Fix Things For Us Again.
The article then pivots toward the current election, speculating on whether Vice President Kamala Harris or former President Donald Trump would be more inclined to restore a disciplined monetary approach. Both candidates likely “draw” on this question, given the pragmatic demands of contemporary policy.
Trump was (and is) seen as a spender for growth, whereas Harris was just seen as a spender.
The role of gold as a hedge against what the article terms “the ongoing ruin of the American public credit” is undeniable. In this context, gold emerges as more than a commodity; it is a “speculative asset” with intrinsic value for those wary of the modern paper-dollar system. To which we add the speculative part is on the dollar’s survival, not Gold’s.
The QE era has left a legacy of “weakened balance sheets and an overburdened government securities market.” Gold stands apart from these distortions, offering refuge from speculative-grade debt and inflationary pressures. Absent real progress towards fixing things, Gold may fix it for us.
Miner Distractions
Interestingly, despite record-high prices, gold remains on the periphery of mainstream investment. Institutional investors largely ignore it; insiders within the gold mining sector have sold shares instead of hoarding them. As the article observes, “Outstanding shares of GDX, the big gold-mining exchange-traded fund, have tumbled,” indicating a tepid embrace of gold’s rising value. John Hathaway of the Sprott Gold Equity Fund highlights the reality: “minor (miner?) net outflows” suggest that even seasoned gold investors remain cautious.
No doubt a generation or two of neo-keynesian training has left even the most staunch supporters of real money hesitating to “speculate” on Gold as they have been trained to feel now. At least as evidenced in the lukewarm mining sector.
What’s it Worth to You?
Yet, the lingering question of “What’s gold worth?” remains without a definitive answer. Value assessments of gold are inherently speculative, and as the article succinctly concludes, “higher” is the closest one can get to a forecast.
Notably, historical models such as the “price of a good man’s suit” provide a perspective, if not a precise valuation. Grant gives his own opinion on which is closer to an ounce of Gold focusing on a range somewhere between Brooks Brothers and Brioni.
Grant notes Brooks Brothers suits once cost the equivalent of an ounce of gold; today, the range is broad, from $1,298 at Brooks to $6,300 for a Brioni (preferred by Trump).
Brooks Brothers…quality has woefully slipped since the days when the clothier dressed presidents (including John F. Kennedy at his 1961 inauguration).
Maybe the aphorism should be refined a bit to say: Gold is worth the price of a US President’s suit.
Dollars in Ounces, Not Ounces in Dollars
That range of figures suggest that while gold may not fit neatly into an economic model, it retains value precisely because it exists outside the constraints of fiat assumptions. What Gold is worth is not what Gold’s price is. For example:
Pre Fiat:
Customer: I need a suit
Tailor: How much can you spend?
Customer: I have an ounce of Gold
Tailor: We can make you a very nice worsted wool. What color and pattern?
Post Fiat:
Customer: I need a suit
Salesman: What is your budget?
Customer: I have $1298.
Salesman: The rack at the end of the aisle
Gold is worth what it can buy you, not what fiat says it is worth.
Value not Price
That sleight of hand described above was a trick foisted on us. Specifically: getting us to measure Gold and Silver in $/oz instead of measuring Dollars in ounces of Gold or Silver is when it started. Inverting the relationship split Gold’s value (a good suit) from its price (what the Fed says) played a part.
While the Federal Reserve and most political leaders may dismiss its relevance, for those cautious of inflationary policies and speculative debt, gold remains an invaluable asset—steady, unyielding, and immune to the pressures of modern monetary theory.
Final Comment: Gold Must Be Monetized
It makes perfect sense that Donald Trump2 is backing into a Gold standard of some sort, or will use a Gold backed asset ( a Bond held outside the US Treasury that will be backed with something in combination with Gold to counterbalance the BRICS UNIT plan3) to entice overseas investment in the US in keeping with his homage to President McKinley’s policies. He just cannot talk about it.
Preserve and harness the USD as GRC but….
Harness the monetary buying power of Gold
Weaken the USD for Trade Export but…
Not demoralize the UST market
Re-entice the ROW to finance US Deficit
Monetize an asset they want (Gold) with a US upside kicker.
How else will we remain competitive in trade, rollover our debt, and not weaken the dollar too much and remain one of two likely GRC’s without destabilizing the World? We will use Gold or we will lose significant ground globally.
The US under Trump is seriously considering putting Gold on the yield curve and selling the bond to willing investors to finance our deficit..
We’re betting on it now.
A Corporatist in the mid-1900s sense and Mercantile nativist in every sense of the word who despises global finance wants to build his way out of everything in an environment that needs just that
preserves the USD as currency standard, and gives them all a stake in it.. much more on this hopefully to come…
Seems a fairly simple equation- number of dollars/number of ozs = value of gold? On August 15 1971 it was a single executive order 11615 signed by then President Richard Nixon. All it takes is another EO unsuspending Nixon EO. Unsure what a hamburger would cost ( a lot) something’s has to give though we all here at GF are aware of the need.?Seeking hints as to how to play this rather dicey subject correctly.
Great article 👍🏻