Is the West Losing Control of Gold Markets? (Uncut) 02-16-2025

Is the West Losing Control of Gold Markets?

Have you ever heard of the golden rule? It goes something like this. He who has the gold, makes the rules. This tongue-in-cheek phrase has been a fundamental reality of monetary history for centuries.

It’s one reason why the U.S. was able to dictate global finance after World War II. It had the largest gold reserves, and used that leverage to establish the Bretton Woods system, making the dollar the world’s reserve currency. When the gold standard was abandoned in 1971, the U.S. still maintained financial dominance through the petrodollar system and control of global institutions, but that power rested on trust, rather than tangible gold backing.

Now we’re seeing this rule play out again, except the gold is shifting. China, Russia, and other eastern nations are accumulating gold, while the West treats it as a secondary asset. If gold ends up concentrated in the East, then over time, the ability to make the rules will follow.

A structural change of these proportions will require major catalysts, one of which may be playing out under our noses today. Before we begin, please take a moment to subscribe to our channel. Your support allows us to create fresh content each week.

Thank you. The past few weeks have been tumultuous. The Trump administration wasted no time enacting a slew of executive orders, and tariffs were one of the first priorities.

On February 1st, 25% tariffs on imported goods from Mexico and Canada were announced, alongside a 10% tariff on Chinese products. And by the time the sun set on Monday, a temporary truce had been reached with both Canada and Mexico. Tariff threats are creating uncertainty in the marketplace, which has led to deteriorating conditions between New York and London exchanges.

Traders in the U.S. are concerned about a potential 25% tariff on gold, creating massive losses and have been stockpiling gold in response. The sudden and overwhelming demand has created a difference in premiums between the COMEX and LBMA, giving big banks a massive arbitrage opportunity. The result is that gold has flowed out of markets all around the world and into the U.S. The secondary effect has been stress on the London exchange as liquidity has begun to dry up in response.

Wait times to take physical possession in London have gone from a few days to four weeks. On its surface, this looks like a temporary change in fortunes, but this isn’t the whole story. If it were, this would be just another case of gold moving to where it’s most profitable to sell.

What makes this different, and why it’s potentially structural, is that deeper market dynamics are shifting in ways that can’t be easily reversed. Asian markets, especially China, are increasingly setting their own gold prices independent of London and New York. The Shanghai Gold Exchange has been pricing gold at a persistent premium, compared to Western benchmarks, which means physical gold keeps flowing east.

The recent outflow of gold back into the U.S. might look like a reversal, but it doesn’t change the broader trend. Central banks in the east are aggressively stockpiling gold. China, Russia, and even countries like Turkey and India have been quietly building reserves for years.

This suggests they see gold not just as a commodity, but as a strategic asset in a world where trust in the dollar and U.S. financial hegemony is eroding. Western markets, on the other hand, treat gold largely as a financial instrument, something to trade rather than something to hold. That’s a fundamental difference in how east and west view gold, and it has consequences for the future of pricing power and market control.

The London and New York gold markets have long relied on leveraged paper contracts to dictate pricing, even when the actual metal supply is tight. But if too much physical gold drains out of the system, the paper market risks losing credibility. This is where things could get dangerous.

If confidence in Western gold markets cracks, it could trigger a run on physical gold that the current system isn’t prepared for. So while banks might be making money on short-term arbitrage right now, the bigger picture is that gold is shifting from being a Western-controlled financial asset to an eastern-held strategic asset. That’s not just a temporary trade.

It’s a fundamental change in how global gold markets function. While a temporary reversal in gold flows might look like it could delay structural changes, it actually is a potential catalyst to accelerate the change. Banks and traders are simply taking advantage of price gaps, but once that arbitrage opportunity closes, and it always does, the gold won’t stick around.

Instead, it’ll flow right back to the east, where long-term buyers are accumulating, not trading. More importantly, this reinforces the growing realization that gold pricing is increasingly dictated by the physical market, not the paper market. The West still controls the paper-driven London and COMEX markets, where leveraged contracts outnumber actual gold holdings by a massive ratio, estimated at 124 ounces of paper gold traded per ounce of physical gold held and ready to distribute.

But the East is creating a system where price discovery is based on physical gold, not derivatives. Every time gold moves in large volumes between these regions due to arbitrage, it exposes just how fragile the Western system is. Now factor in delays in contract fulfillment due to a shortage of available gold, and you start to understand what kinds of catalysts might push organizations and institutions towards the East.

The East is playing the long game, accumulating gold while the West keeps treating it as a financial instrument rather than a strategic asset. If this trend continues unchecked, the real tipping point could come when Western markets can no longer set gold prices effectively. Amazingly, this is an open secret.

China does not attempt to hide what they are doing. The former governor of the People’s Bank of China, along with other Chinese officials, have openly challenged the Western system. The phrase, the true price of gold will become apparent, has been echoed in Chinese financial circles, suggesting that once Western paper markets lose control, the real value of gold based on physical supply and demand will emerge.

And then, those who hold the gold will make new rules. This has broad implications when taken in the context of reserve currencies throughout history. The U.S. was able to control global finance after World War II because we had the largest gold reserves, and that was used as leverage to establish the Bretton Woods system.

But that’s not the only time gold has played a central role during a reserve currency shift. Gold has been a kingmaker in nearly every major reserve currency shift in history. The loss of monetary hegemony is almost always tied to the depletion or mismanagement of gold reserves.

In our current system, the U.S. dollar is treated as the ultimate safe asset among currencies. Global commodities are priced in dollars, and while gold does not officially back the dollar, it acts as the anti-dollar in times of crisis. Losing control over the global gold market would strike at one of the key pillars supporting the U.S. dollar’s dominance.

There is a lot more to be said on this topic, but we are limited on time. What does all this mean for gold investors today? If trends continue, the reality is the paper system cannot exist indefinitely, and current events make the cracks more apparent. Unless there is a change, gold priced in Moscow or China, based on physical supply and demand, could become the standard, and paper gold largely diminished.

We are likely years away from this, but no one knows what final straw will break the camel’s back, or when those catalysts may occur. If this happens, investors who have taken physical ownership of their bullion will be in the safest position possible. The old adage, if you don’t hold it, you don’t own it, is not just a historical witticism.

It’s a warning against allowing others to control your assets in a crisis. For investors who are primarily invested in derivative contracts like ETFs, take a moment to examine the risks and consider your options. That’s all we have for you today.

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