Why gold’s price is rising so much (Uncut) 02-13-2025

The politics of gold: Economist Michael Hudson explains why gold’s price is rising so much

The price of gold has been skyrocketing. Since 2018, the price of gold has nearly tripled, and this has caused a big debate around the world about why this is happening. There are of course several different factors.

One of them is that central banks around the world have been buying more and more gold, especially with the threat of sanctions from the United States. One third of all countries on earth are under U.S. sanctions, including 60% of low-income countries. And the war in Ukraine has only accelerated this as the U.S. and the EU seized 300 billion dollars in euros worth of assets held by Russia’s central bank.

This has scared many other countries’ central banks, who fear that they could be next to have their assets seized by the And gold is being seen as an alternative to dollar or euro-denominated assets. But it’s not just central banks. There’s also a lot of private demand, especially as there was a lot of inflation coming out of the COVID pandemic.

But what’s interesting is that typically gold is an inflation hedge, and when inflation increases, the price of gold tends to increase. But in the past two years, inflation has come down, and yet the price of gold has continued to skyrocket. So why is this happening? Well, today I had the privilege of being joined by the award-winning economist Michael Hudson, and he explained why the price of gold continues to rise and what the implications could be for the entire global economy and the politics of gold.

Because as Michael often stresses, you cannot separate economics from politics. So here are a few highlights of Michael Hudson, and then we’ll go straight to the interview. Demand for gold, as I said, has been far outstripping the supply for many, many years now.

And as we’re taught in Economics 101 textbooks, when demand outstrips supply, prices go up. But that hasn’t been happening with the gold price until just the last few months. And the question is, why hasn’t it happened? Well, the obvious answer is that the gold market isn’t like regular commodity markets.

So the United States has sought to keep gold prices down ever since it was revalued in 1971. And the aim of this was political. To keep the world viewing the U.S. dollar, meaning essentially U.S. Treasury securities, is the most secure form of their international reserves.

And it’s secure in the sense that unlike other countries, the United States can simply print the dollars. It can’t go bankrupt. People like to say gold is an inflation hedge.

But you could say eggs are an inflation hedge, or pork is an inflation hedge. The point is, the real problem is the U.S. balance of payments deficit pumping dollars into the world. The recipients of it, you’ll pay dollars to an exporter from China or Germany, when there was still a Germany industry.

And they’d turn the dollars over to their central bank. And the central bank would then say, what are we going to do with these dollars? If we don’t send them back to the United States, our currency is going to go up against the dollar. And that’s going to make our exports less competitive.

So we have to keep our currency, our exchange rate down. And we do that by buying Treasury securities. It’s always been political.

And the newspapers don’t want to talk about politics. Because if they talked about politics, all of a sudden people would realize the Western political and economic system cannot last in the way that it’s structured now. When you talk about politics, you realize the game is over for the West.

Hi, Michael. It’s always a real pleasure having you. The last time we had a discussion, we analyzed the effects of Donald Trump’s tariffs or his threat of tariffs.

And you warned that it could cause a global financial crisis as countries won’t be able to get the dollars they need to pay off their dollar-denominated debt. After we had that conversation, you raised some other points about the gold market that you wanted to talk about. And I thought that would be a great separate episode.

So why do you think we’ve seen this massive shift, the tripling of the price of gold in the past seven years? Well, we’ve been talking for many years now about how the international financial system works, and central bank reserves, and de-dollarization, and the split of the bricks away from the West. And that’s what my book, Superimperialism, was about, how America was driven off the gold standard because of the balance of payments drain from the Vietnam War and for world’s military spending up to 1971. The entire U.S. balance of payments deficit from the Korean War in 1950 all the way through the 50s, the 60s, and into the 70s was military spending.

And the result was that the United States had to every month sell the accumulation of dollars that ended up in France, Germany, and other countries. The dollars spent in Vietnam that were exchanged for local currencies ended up in French banks because Southeast Asia was a part of the French empire. And the French banks sent these dollars to Paris, and General de Gaulle would then cash in the dollars every week.

And until 1971, every printed dollar, your dollar bills in your pocket, had to be backed by law 25% by gold. So we were watching the American gold supply go down and down to the gold cover. And every week, Friday morning, when the Federal Reserve gold report would come out on Wall Street in the mid-60s, we were all saying, well, when is the breaking point going to come? Well, it came in August 1971.

And at that time, the U.S. government thought, this is terrible. We’ve controlled the whole world financial system ever since World War I by our holding gold. And that was what other countries used to have their monetary reserves.

We’ve controlled other countries’ ability to run budget deficits, to fund their own economy with gold. Now we don’t have it anymore. And there was a lot of hand-wringing.

And I wrote my book, Superimperialism, to say that this is not going to interfere with the American empire, because if countries, central banks, governments can’t buy gold, they have only one big alternative at that time, and that was to buy dollars. And how do they buy dollars? They’d buy U.S. treasury bonds, treasury notes, short-term treasury securities. They’d put their money and hold it in the form of U.S. debt.

And as they got more and more dollars, they spent more and more money buying U.S. debt. And that became an increasing way of how the United States funded its own budget deficits. Who bought the bonds to fund these? Increasingly central banks.

So the United States found this is what some people called the exorbitant privilege of the dollar. When other countries run a balance of payments deficit, they have to devalue. The IMF comes in.

They say, lower your wages, impose poverty, to squeeze out enough money to pay the bondholders. But the United States can keep printing the money. And what can other countries do? They don’t have an alternative.

Well, you’ve seen increasing pressure to create an alternative for the last decade or so, and that’s what you’re in my discussions and your sites been about. Other countries want to de-dollarize, and the United States fears that, well, what’s going to be the alternative? Well, to some extent, we know they’re buying each other’s currencies. They’re buying yen, rubles, doing trade and investment in each other’s currencies to avoid having to use the dollar and having to take the risks that Venezuela took, Iran, Russia, on just having the dollar confiscated.

But still, there’s an idea that gold is a kind of asset that the whole world has been able to agree on along with silver for the last 3,000 years, is the monetary base. How are you going to get countries all over the world, from North America to Europe to Asia, all to agree on what to hold? Well, they’re trying to come up with an agreement now, and they realize, well, that you can’t have a BRICS monetary system until you have a whole political integration of the BRICS. So that’s not going to be an alternative for right now.

So countries are buying gold. Well, the private sector is watching all of this. They’re listening to your show and what I’ve been writing about, and they say, well, we’re in a situation now, just like the world was in the late 60s going into the 1970s, when finally the gold price rose beyond the ability of the United States to keep it down to $35 an ounce.

And so, private investors have got into the gold market. And this is what makes the gold market not simply talk about commodities, how to get rich. It talks about how the world economy is being restructured in its monetary relations and what the politics are.

But what I’m going to talk about today is what is happening that makes the gold market so political and so unique that something very strange is happening there. On Monday, February 10th, the week started with gold rising to over $2,900 an ounce. So we’re on the verge of it going up to $3,000 an ounce.

That’s a quantum leap. And if you look at the statistics for gold mining throughout the world and the supply and demand of gold, demand has been far outstripping the supply now for 20 or 30 years. And we’re seeing now an effect very much like a run on the bank.

But that run on the bank has actually been occurring for a few decades. So the question that you have to ask to begin with is, why did it take so long until just this year for gold to begin to go up in price after it stagnated for a decade? We’ve seen the last decades, the central banks have devoted a steady rise in the proportion of their reserves that they hold in gold and proportionally less of their reserves in the form of U.S. dollars. They’re still holding more and more dollars every year because the United States is running such a large balance of payments deficits that it’s pumping dollars into the world economy.

But other countries are not just recycling these dollars. They’re spending more and more of dollars they get onto gold as a kind of safe haven for them, something that is solid. Gold is an asset that doesn’t have a debt attached to it.

If you hold a gold coin or a gold bar, that’s a pure asset, no debt at all. But if you hold a treasury bond, that’s a debt, a debt of the United States. And if it’s a debt of the United States, it’s like your bank deposit is a debt of the bank to you.

And if the U.S. goes under like a bank goes under, or if it just refuses to pay, then you’re out. And there’s something ephemeral about all of this. Well, if you look at the trend of gold prices, it’s stagnated in a very narrow range from about $1,200 to $14 an ounce for a few years, from 2015 to 2019.

It was all in a range. Well, I spent a lot of time in Europe and Asia at that time. And all of the government officials I talked to, the financial funds all said, well, we’re buying more and more gold because this system can’t last politically the way it is.

But the price didn’t go up. And then during the COVID years, from 2020 to early 2023, once again, there was a stagnation, a range from $1,800 to $2,000 an ounce. That’s a pretty narrow range.

You had a low range, a little step function to a new range, and then very, very gradually drifting upward, but not anywhere near as fast as the actual demand for gold was. And well, finally, in the last half year, we’ve seen the gold price rise all out of range to, as I said, nearly $3,000 an ounce. So the question is, are we in a new range for gold, or is the price going to go higher? And with so many people buying the rights to hold gold, you’ll buy a gold fund, and you’ll pay money into the gold fund that has securities in gold.

Or you’ll buy gold and you’ll store it with a bullion dealer because you don’t want to keep it at home because it could get stolen or who knows what will happen. Well, where is all this gold going to come from physically to meet the demand? During the last quarter century, there’s been a rising private investment boom in gold because people can look at the trend, more and more excess demand over the supply, and they can see that this is an unstable situation. And so to understand it, you have to understand how unique the gold markets are.

And I want to talk about that today, not simply as an exercise, but to show what the politics behind the gold market are and what it means for how the world economy is being restructured. Suddenly, gold is more than just an investment vehicle. There have always been gold bucks that don’t understand how is it that the government can just print money? We don’t understand.

We’re going to just try to buy gold and there should still be the gold standard like there was in the 19th century. There are all these crazies on the right wing, libertarians who don’t trust government. But now we’re talking about demand, not just from the crazies, but from regular funds that are looking at the trends and they realize that, well, there’s a pile on effect that’s occurring.

Everybody suddenly is moving into gold and you’ll find the advertisements all over the internet. When you watch the YouTube shows, there’s very often an advertisement for gold in there and obviously more and more people are doing it. So the question is, is all this just a bubble or are we moving towards a new and even higher long-term plateau? Is there a change occurring in the world’s financial and monetary system politically? Well, I’m going to explain what’s happening.

Demand for gold, as I said, has been far outstripping the supply for many, many years now. And as we’re taught in Economics 101 textbooks, when demand outstrips supply, prices go up. But that hasn’t been happening with the gold price until just the last few months.

And the question is, why hasn’t it happened? And why have the gold prices suddenly begun to escape from their former narrow range and risen so fast since last autumn? Well, the obvious answer is that the gold market isn’t like regular commodity markets. And even regular commodity markets don’t operate in the simple way that popular media and textbooks say. One reason for that is that for the last century, the price of gold has been regulated by central banks, mainly by the U.S. Treasury, ever since Franklin Roosevelt revalued gold at $35 an ounce in 1933.

That lasted until President Nixon took the U.S. off gold in 1971 as a result of the war. And as I said, U.S. officials were very frightened that the U.S. was no longer able to control the price of gold, and hence the key to the whole world’s money creation that it needs to finance how its economy operates. And the U.S. thought, well, other countries are now going to take gold, and we’re not going to keep up with them.

And there goes our leverage for imposing power and institutions like the International Monetary Fund and the World Bank that were all put in place in 1944-1945 at the end of World War II. But that didn’t happen, for the reasons that I explained in Superimperialism, my book in 1972. There really weren’t many alternatives large enough to put foreign money in.

So instead of cashing in their dollar inflows by buying gold, foreign central banks just bought Treasury securities. And as I said, that funded the rising portion of the U.S. domestic budget deficit. Well, the dollar glut was run up, mainly, as I said, by military spending.

And I worked for a year with Arthur Anderson, the accounting firm of Chase Manhattan Bank, showing this. And I became a consultant to the U.S. government explaining this phenomenon during the 1970s. And this is not something that is taught in economics courses because it’s politically sensitive, and economics tries to be apolitical.

Because if you see how political economics really is, you have a different approach to politics. So the United States has sought to keep gold prices down ever since it was revalued in 1971. Gold prices went up pretty quickly to about $700, $800 an ounce, then finally, by the mid-2010s, into $1,200, $1,400, you know, gradually going up.

And the aim of this was political, to keep the world viewing the U.S. dollar, meaning essentially U.S. Treasury securities, as the most secure form of their international reserves. And it’s secure in the sense that, unlike other countries, the United States can simply print the dollars. It can’t go bankrupt and unable to pay the debts, because unlike other countries that have debts in a foreign currency, the U.S. debt is in its own currency and dollars, and it can just keep printing them.

Very well said, Michael. There’s so much we could respond to. We talked about central bank demand for gold, but I think another important factor here is inflation, because traditionally gold has been seen as an inflation hedge.

When you have moments of high rates of inflation, for instance, coming out of the COVID pandemic, as the economy reopened in 2022, inflation, consumer price inflation, was very high in the United States and many countries because of the supply chain disruptions. So as inflation increased in 2022, you could see that in October, the gold price was around $1,600, and it increased pretty substantially to almost $2,000 in the spring of 2023. However, what happened then is that in early 2023, the inflation peaked and the gold price went down as inflation went down, because of course it’s an inflation hedge, so it makes sense that they would tend to move together.

However, something very strange happened. In October 2023, the gold price reached a low of around $1,850, and since then, consumer price inflation has continued to fall. But that relationship broke, and instead, the gold price skyrocketed by another $1,000 to around $2,900.

So Michael, that relationship has now ended and it’s broken. Why do you think that is? I don’t think there’s a causal relationship there at all. That’s my whole point.

People like to say gold is an inflation hedge, but you could say eggs are an inflation hedge, or pork is an inflation hedge. The point is, the real problem is the US balance of payments deficit pumping dollars into the world. The recipients of it will pay dollars to an exporter from China or Germany, when there was still a Germany industry, and they’d turn the dollars over to their central bank, and the central bank would say, what are we going to do with these dollars? If we don’t send them back to the United States, our currency is going to go up against the dollar, and that’s going to make our exports less competitive.

So we have to keep our currency, our exchange rate down, and we do that by buying treasury securities. It’s always been political, and the newspapers don’t want to talk about politics, because if they talked about politics, all of a sudden, people would realize the Western political and economic system cannot last in the way that it’s structured now. When you talk about politics, you realize the game is over for the West, and so of course they don’t.

They want to make it appear micro. Oh, there are some people who just try to look at inflation rates, and some people really believe this. They believe the textbooks.

They’re gullible. Most investors in gold, I have to say, are gullible, but there are other people that are actually looking at reality, and they can see this system can’t last. In the end, the people who don’t trust gold are going to win.

I’ll give you an example. In 1973 or 74, Herman Kahn and I went to the White House for a meeting with the U.S. Treasury, and I was explaining to them how the Treasury Bill Standard worked. Well, what I said was something that certainly they didn’t want to hear.

I said gold is ultimately the peaceful metal because it’s the U.S. running out of gold that threatened to stop it from spending the military costs of the war in Southeast Asia and all over the 800 military bases that it has over the world. If you have gold continue, and Nixon did not go off gold, then America would very quickly lose all of its gold stock as the cost of waging war against the rest of the world, of keeping its unilateral military power. It’s not power because it’s a democracy.

It’s not power because people love it. It’s because America’s power is the ability to hurt other countries and to bomb them, to finance regime change, and to threaten other countries. That costs a lot of money to keep threatening.

That’s part of the whole crisis that we’re seeing now. You’re all of a sudden winding down what has been, as Trump and Musk have been saying, you’re winding down what’s absorbing an enormous part of the American budget, pushing it into deficit. These are deficit bucks.

They’re not modern monetary theorists. They believe that deficit spending is bad, not that deficit spending is how the government provides money into the economy at large. There’s a whole conflict of monetary theory that’s going on now.

You could say that this whole fight over gold and gold futures reflects the whole idea of what is going to be the basis of American military policy and American foreign policy in geopolitics. Are we going to be in a constant war against the whole rest of the world, or are we going to try to make peace with Russia, China, and Iran and just focus against countries that we can really beat up like Canada, England, Australia, Japan, South Korea? What’s also ironic is that Trump talks about cutting the deficit, but he’s also cutting taxes on the rich, which will likely increase the deficit, which is exactly what Ronald Reagan did. That’s the unstated part, but we all know what he wants.

Exactly. It’s the same thing that Ronald Reagan did. Reagan said he’s going to cut government spending, but actually, the U.S. deficit as a percentage of GDP increased significantly under Reagan.

Ironically, it was the neoliberal Bill Clinton administration that actually reduced the deficit, and for the first time ever since, the only time ever since, the U.S. actually had a budget surplus. It’s interesting, Michael, that you have been associated with modern monetary theory, and you’re not a gold bug, but what you’re saying here is there is an element—you’re not arguing that the dollar should go back to the gold standard. That’s not what you’re arguing, but you’re saying that having some kind of limitations to the amount of money printing by having some kind of link to reality can actually limit— Modern monetary theory explains how to finance the domestic budget deficit, but one thing modern monetary theory cannot do when you create money is you can’t create foreign currency.

You can create dollars to spend into the economy. You don’t have to borrow these dollars from wealthy bondholders and investors. You can simply print the money.

You don’t have to levy taxes because that’s the essence of paper money, but when it comes to foreign spending, especially military spending, you can’t print Chinese currency to finance your spending in Asia. You can’t print rubles. You can’t print other currencies for spending abroad, so modern monetary theory refers to a domestic economy, not to foreign money.

It’s a theory of domestic money, and gold is a constraint on money creation. It all goes back to the awful, awful theories of David Ricardo, the bank lobbyist in Britain in 1809 and 1810 when he was testifying before the Bullion Committee and saying, we need to keep wages down. We need to keep the economy poor so that the wealthy creditors can get enough money to control the world and reduce everybody else to abject dependency.

So we’re against paper money. Paper money is inflationary. If you only use gold and silver, which the rich people have, then we can operate the whole world.

Well, he didn’t say it just in those words, as you can imagine, but his arguments were against creating paper money. This was the antithesis of modern monetary theory, and Ricardo spelled out in great detail exactly what the principles of the International Monetary Fund have been since 1944-45, that if you don’t let countries create their own paper money and force them to have hard currency, gold or US dollars, then they can’t afford to hire more labor. They can’t afford to invest.

They’ll be completely dependent on countries that can act as creditors. Again, that’s what I explain in my book, Superimperialism, how this whole system came in. I’m writing a book now on the last two chapters of the political alliances of bankers from the Crusades down to up to World War I, where you have the whole attempt of hard money.

This is what caused a rupture in American politics in the 1870s, 80s, and early 90s. Yeah, at the end of the 19th century, the famous populist US politician William Jennings Bryan said that the financial class wanted to crucify mankind on a cross of gold, famously. Remember when the creditors, after the Civil War, wanted to roll back prices.

They said, well, there’s been inflation during the Civil War. That means that all of our bondholders don’t have the same purchasing power over labor. We have to reduce labor’s wage rates and make them poorer and poorer so that we can get richer and richer.

We do this by forcing gold down. You need unemployment. They were just like the Federal Reserve says, we need unemployment, hard money to keep wages down so that employers can make more profits from hiring cheap labor, basically.

This is the class war of the financial sector against the economy at large, against industry. Finance capitalism has become antithetical to industrial capitalism. That’s what you and I’ve been talking about in these shows.

It all goes back to Ricardo saying, if you take away the government’s ability to run deficits and spend money into the economy, then you’ll be dependent on the rich people to supply the money. When President Clinton finally ran a budget surplus in 1998-9, what happened? That meant that the government was not spending money into the economy. People had to go to the banks and borrow and pay interest to the banks.

That’s what the financial sector wants. It wants to get interest to force the economy at large to pay interest to get the money that it needs to conduct business and employ labor. Instead of having the government simply printing the money without interest, the inflationary effect is identical.

There’s no more inflationary to print money than to borrow from a billionaire who isn’t going to spend money on buying eggs, in any case, and printing the money that way. There’s a whole fight over what is the source and the use of money in an economy today. That’s been pretty much not discussed in the popular press, but that’s what modern monetary theory is all about.

It was fought against by the financial sector that wanted to control money by the wealthy classes, by the financial sector, and by the banks, not by the government for the public interest. The government position, Democratic Party position, Republicans, money is to be created to make money for the wealthy financial sector, not for the economy. The modern monetary theory is we should create money to promote actual economic growth and rising living standards, not simply create money in a way that makes money for the financial sector and the billionaires.

All of this political argument lies behind the restructuring of monetary policy that we’re going to be seeing in the next few years, triggered by this gold meltdown. Very well said, Michael. There’s so much we could respond to, but I want to go back a little bit to talking about the gold market, because something that you were emphasizing is how different the gold market is from other markets.

You were talking about how the actual economy works very differently from what’s taught in textbooks, and you emphasize that the gold market in particular is different from other commodity markets. So can you talk more about that? So the important key to understanding just how all of this was accomplished is to see how complex the world’s financial commodity exchanges, where gold prices are set, are, and what’s their relationship to actual commodity dealers, which is where individuals go to buy gold. Central banks can buy gold from each other.

People, investment funds, hedge funds, individuals, Indian jewelry makers buy gold from bullion dealers. Well, there’s a general impression that when people, or central banks, or mutual funds buy gold, they place bids in a market, something like the commodity exchange, COMEX exchange. Money is made, but that’s not really where people buy and sell gold.

In a commodity exchange, this is really a gambling venue. You bet on whether the price of a stock, or a bond, or gold, or a commodity, copper, or wheat, or any other commodity, is going to go up and down. So a commodity exchange is a bet on where prices are going to go.

These dealers who are buying and selling options for grain prices, and where is the stock market of a standard and poor 500 going to go, they’re not actually going to buy wheat or gold, or the stocks. They’re putting a bet on which way prices are going to go. And that bet is supposed to reflect what’s happening in the real world.

There’s supposed to be some physical, tangible basis for all of this. So I want to take a minute to explain. Vanguard has a site that talks about puts, and calls, and selling short, and options, and that has a vocabulary all its own.

I’m going to quote what Vanguard says. When you buy a call option, you’re buying the right to purchase a specific security at a locked-in price, the strike price, sometime in the future, a given date. If the price of that security rises, you can make a profit by buying it at the agreed price and then reselling it on the open market in the exchange at the higher price.

Or when you buy a put option, you’re buying the right to sell someone a specific security at a locked-in price. So suppose the price of gold is $1,250. You can say, well, I’m going to sell it to you at only $1,200.

Well, if the price falls, you can actually make a profit by buying it on the open market at the lower price and then exercising your put option at the higher price. That sounds complicated. Just to simplify for people, you did a good description, but the very simple explanation is, if you buy a call, it’s because you think the price will go up.

If you buy a put, it’s because you think the price will go down. So call up, put down. And as you said, these are essentially financial bets.

This is options trading. Well, the question is, during the 2010s, when everybody was talking about, this trend can’t go on, the price of gold has got to go up, why would somebody come in and keep selling gold at a lower price forward, saying in three months, we’re going to sell you gold at $50 an ounce less or $25 an ounce less? Who is doing this? Well, I don’t know any private investor that would have come and done that because they said, well, we think the price is going to go up instead of going down. That’s the long-term trend of gold.

Well, the explanation is, all these selling of gold forward was done by central banks, mainly by the US Federal Reserve and Treasury, acting on behalf of the Treasury, or the Bank of England. People, when you buy a put or a call, you have to pay money for the options. And there used to be, you look in the newspapers, and here’s how much it costs to buy an option for Treasury bonds for a price for stocks or for gold.

And when you sell the right to buy gold, let’s say the same price or a dollar or two less, then people will pay you for that option to buy it at the same price in three months or six months. And that’s a source of revenue. And so the US Treasury, the Bank of England, were actually making money, selling gold short.

And when you keep promising, you have so much money, and there’s such a large participant in the market, you’re sort of like George Soros when he broke the Bank of England. You can make the market by being so large. And when you come in and you keep selling gold short way beyond the demand, you’re overwhelming the market, and that holds the price down.

And even though more and more people may be buying gold, the United States and England are making money by essentially engaging in this market manipulation as a source of revenue. And that is one of the factors that was holding down. Well, central banks also have, in fact, been selling gold short for many decades now, and they’ve been making money by it.

And as I said, to buy this option, to buy gold at a fairly low price when you think, well, certainly the market’s going to go up for gold, the price must be going up for gold because everybody’s buying it. I’m going to buy this option to buy, and it just didn’t work. A lot of people, pessimists for gold tried to do this, and they were overwhelmed by the central bank’s selling.

And most options are not exercised because central banks keep selling forward again and again and again. And that is what held down the price of gold for many decades. It kept the price from rising because future buyers can always buy the other end of a short sale at a lower price, and that the supply and demand wasn’t just in the private market.

It wasn’t just among central banks. It was a manipulated market. So it seems that this gold drain to satisfy the recent $1,000-an-ounce price rise that we’ve seen has seriously depleted gold reserves, and the Treasury has actually had to sell them.

And this is another aspect of the market, and that’s the gold dealers. Suppose there were not a commodity exchange to set the prices for contracts. Well, the demand for physical gold has been running ahead of its supply, and so central banks have been leasing the gold to gold dealers.

In other words, the central banks have felt, you could call it hubris. They said, well, we’re always going to be able to keep the price of gold down. So gold dealers are buying gold and selling it to their customers who expect prices to go up.

And so gold dealers will say, give us a ton of gold at this price. We’ll pay you to lease it so that we can send it to customers. And if the price doesn’t go up at a certain point, the customers will say, okay, I didn’t make the profits in gold that I made in the stock market or in the bond market.

Remember, after the Obama bank crisis in 2008, 2009, the whole quantitative easing came in, and interest rates were so low that it spurred an enormous stock market boom and the biggest bond market boom in history. Why would people want to buy gold after 2009 when gold prices are going up gradually, but stock prices and bond prices were going up so much more? So the rival to gold was this artificial boom created by quantitative easing and low interest rates. So that’s part of the equation.

And central banks were happy to lease the gold to gold dealers. They made money from this leasing, just like you’d lease a car. You would give them the gold.

They’d have to give it back at a specified date and say, okay, we’ll lend you this gold for a year. And at the end of the year, you’ll have to give it back, but you can hold it and do what you want at that time. Well, the gold dealers would then turn around and sell to the private investors, maybe central banks too, the gold that they’d leased.

And at the end of the year, they’d say, well, we’ll take out another lease, and we’ll lease now for two tons. Then later, well, for three tons. And so the central banks would keep leasing out the gold ton after ton to the gold dealers.

Well, that meant that the US would send gold physically from Fort Knox to the gold dealers, largely in London, which was sort of the gold trading center, just like the gold market after World War II, when the United States held down the price of gold in the market, that was in the London gold exchange that they were holding it all down in. So the US and England kept leasing gold, making money that way from the dealers, and selling gold short and making money off the purchase of the commissions to make money. And that became a good source of financing.

If you do the accounting, Fort Knox would have a claim for payment on the gold dealers for leasing this gold. And that was the way for Fort Knox and the Treasury to make money. But their aim wasn’t simply to make money.

It was to keep down the price of gold so that gold would not reemerge as a rival to the US dollar. That’s what drove this whole system. And that was the motivation for the United States.

It was political. Michael, by the way, just for people who don’t know, Fort Knox is the Department of the Treasury’s gold holdings. It’s the physical location.

It’s officially called the US Bullion Depository, but it’s where the Treasury has its physical gold reserves. Yes. But most people think of that as Fort Knox.

If you saw the movie Goldfinger, you know where it is. By the way, for younger viewers, when you say Goldfinger, you’re referring to a classic James Bond movie from the 1960s. It’s a very good movie, too.

You can watch it again. It’s always fresh. Sean Connery was still the James Bond back then.

So the question is, how do we know how much gold that has been actually sent to US gold has been sent to foreign dealers? And there are no statistics on this. And there are not even any statistics for how much gold is actually in Fort Knox. You’d think the United States reports its gold supply, but the gold supply treats all the gold that has been leased to foreign dealers as part of the gold supply, because it is our gold supply.

But we’re not holding it. We’ve leased it out. Just like if you’re an auto company like Hertz or Avis, and you lease a car, the car is your car.

It’s not the renter’s car. Well, the gold is still yours. It doesn’t belong to the gold dealers who leased it from you.

So Craig Roberts, a friend of mine who was the former Assistant Secretary of the Treasury for Monetary Affairs under Ronald Reagan back in 1981 and 1982, wrote me recently to say, I’ll quote, before we learned to suppress the gold price with naked shorts, that is selling gold short when you don’t have it, we leased the gold to bullion dealers who sold the gold. And the state of this leasing seems to have accelerated steadily. There are no statistics.

And Representative Ron Paul, years ago, could never get a gold audit from Fort Knox. Or he wasn’t even allowed inside to see if there was any gold there. And Ron Paul, who’s sort of a libertarian, the leader of the libertarian group in Congress, made a fuss.

But he was told, it’s a matter of national security. So imagine that even a congressman who cannot find out how much gold physically is there, why would it be a matter of national security if there’s no problem? Why isn’t the U.S. glad to say, here’s how much gold we have? We’re perfectly solvent. We have it all.

No problem. They’re not letting any statistics out at all. So the Treasury has worked in two ways, as I’ve said, to keep the price down, leasing gold for many years, and then manipulating it in price to keep it low via the gold exchange standards.

Well, the question is, if gold dealers sold, what have they done with this gold that they’ve leased? Well, when I was studying the history of money and banking 60 years ago, the principle of fractional reserve banking was the first thing that the professors talked about and explained. That means that if you go to a bank and you have a deposit there, the bank doesn’t just hold all your money. It realizes that not all of the bank depositors are going to want all their money at the same time unless there’s a run on the bank.

So the banks take your money and they have to keep, let’s say, one-seventh of the money they keep liquid for just the turnover, for normal demand by people who actually want to write checks on their accounts and spend the money. But basically, they make their money by lending out most of the money you put into banks and mortgages to stock dealers or bond dealers. They lend it out and only keep some of their money on reserve.

And banks have specific reserve requirements, and now it’s capital backing requirements that they have. They’re regulated for how much money they have to keep liquid on hand. But back in the 16th and 17th century, before there was modern banking, gold dealers played the role.

If you were a well-to-do person and the money that you had was gold and silver coinage, you didn’t really have paper currency coming in until the 17th century, and especially after the Bank of England was created in 1694. People used their transactions were in coinage and gold. So if you were wealthy enough and you had extra coinage, you’d keep it with a bullion dealer because you didn’t want to keep it at home because you could be robbed or there could be a fire and the gold would all melt.

And the gold dealers would charge you for safekeeping your gold. But they realized that as more and more people sold gold, they didn’t have to keep all this gold in their own vaults. They could take this coinage and they could buy bonds that were yielding a good amount of money, or they could buy real estate.

They could buy whatever they wanted, and they only had to keep some of this gold in their hands as reserves. And needless to say, when there was a crisis, and a financial crisis, or when there was a war, you had these depositors come and say, okay, we need our gold. There’s instability.

We want to keep the gold at home now. And the gold dealers would have said, well, we bought bonds with them. We’ve lent out the money to traders to make money on important export trade.

The money is safely invested, but we don’t have the physical gold to pay you. And there would be a crisis and gold dealers would go under if they really didn’t have enough money to pay their depositors, just as banks would go under when there’s a run on the bank. So some gold dealers over lent, and some prudent dealers experienced risks because there was always some crisis that comes up at some point for reasons that usually can’t be anticipated.

That’s why you have regulated reserves. But back in the time of gold dealers, there wasn’t any regulatory agency to make sure that they didn’t just lend out all the money and make money by not only collecting money from the depositors for holding their gold safe, but making money for lending out the gold and investments and making it a two wins, which came to a crisis at the end. Well, this kind of behavior, leveraging your reserves in order to make money poses an obvious problem.

I guess you can think of what it is. How long has Fort Knox and the Bank of England and perhaps other banks been leasing their gold, and how near are they to running out of it? What if there’s no gold left in their vaults at all? Imagine Goldfinger trying to rob Fort Knox, as they did in the movie, and discovering that it turns out that its vaults are empty and there’s nothing to steal. Are gold dealers in a similar position to Fort Knox, having gold claims for payment for gold that it’s leased from the United States, but it’s not able to give it back? And the United States will say, well, we want our gold back now.

And the dealers have said, well, in the past, when you said you want it back, we’ve just paid you a little bit more to lease it and a little bit more to lease it. Well, how much do we have to pay you this time to lease it? Well, the United States can’t say, well, we want all our gold back because people are questioning whether America really has this control of this gold stock. It’s like Avis car getting into an auto wreck, and all of a sudden, what Avis is writing on its balance sheet, well, we have so many cars, and it turns out that some of them are all broken down or some of them are crashed or some of them are missing.

This is the kind of situation we have now. And Avis has auditors and gold dealers and mutual funds have auditors. And probably the Treasury has auditors, but it’s all secret.

And so nobody can see it. So everybody’s operating in the dark right now. And they would like to operate in the light by saying, what’s the real situation? Who has the gold? Who owes the gold? What’s the supply and demand if you factor in all of these leasing, all of these short sales? What’s the actual physical demand for gold? And where does all this gold that’s been leased out or sold forward coming from? Where is it going? Well, we may be near to see the whole charade being exposed.

And that point’s going to come when enough investors actually want to take physical delivery. And it could be Indian jewelers. India used to be called the sink of gold, because while most of the West and China operated on the silver standard, India always focused on gold.

So it’s been a major private sector purchaser of gold. A lot of gold is held either in gold dealers or in Singapore is a place that provides a country that provides safekeeping for people who want to hold gold there. So you’ll have a claim on a Singapore bank or dealer or on a Swiss bank that holds gold.

And you assume that it really has the gold and isn’t operating just on a fractional reserve basis. So I think last week, one former military officer, Douglas MacGregor, was interviewed by Judge Napolitano. And he cited Alex Kreiner telling him that there are suspicions that the Bank of England may not have the gold that they’re supposed to have.

And the US Treasury has suggested, well, we’ll send treasuries through London to provide the British banks with a backup so that they can say, well, okay, we won’t give you the gold, but we’ll give you the money for the gold. Isn’t that the same thing? Well, of course, it’s not the same thing. And the problem could simply, he thinks that US investors are among the recipients of the gold that’s been leased out.

The US, suppose the United States Treasury and Bank of England have leased gold to gold dealers, the gold dealers are supposed to be holding the gold. It becomes a pyramid scheme, basically. And it can’t be solved simply by paying money for the price that you had, because people want the gold.

That’s why the price has been going up so much. The leasing would have kept working if the United States and the British satellite had enough gold to keep selling it short and leasing it out. But if more and more buyers buy the right to get gold on COMEX Futures, and the Treasury can simply pay them the price gain that they’d bet on, the problem could be solved simply by printing more money, which the Treasury can create ad infinitum.

But once you lease gold, that poses a more concrete and immediate problem. At some point, people are going to want to take physical possession of the gold. That’s what’s occurring.

It’s a run on the gold market, not a run on the bank, but a run on the gold market. And most individual investors haven’t wanted to hold gold until right now, but now they’re getting antsy. So what’s going to happen? And how is all of this sort of pyramiding scheme going to end? Well, the preferred solution for the United States and the British governments would be to simply pay their way out of the present quandary.

But investors who’ve bought receipts for holding gold want to have some security that the gold is really there. And for the first time, they’re not really trusting the dollar, the pound, sterling anymore. That’s why for so many thousands of years, people have wanted to hold gold bullion because it’s tangible and you know how much you have.

And one solution would be for central banks to try and replace tangible money investments by just saying, well, we’re going to demonetize gold. We don’t need gold anymore. We demonetized it in 1971.

We kept it on the books. But now, we don’t need gold. We’re an electronic artificial intelligence system now.

So we’re going to just adopt blockchain accounting system and forget gold. It doesn’t count anymore. Poof, we’re going to pay the money that you paid to get your gold.

And isn’t money as good as gold? Isn’t the paper credit that we’re creating on our computers, the computer electronic credit, isn’t that as good as gold? And that’s the ideal for a fictitious financial universe based on claims and liabilities that have lost all connection to physical reality. That’s one kind of future that would solve the problem. Otherwise, how can the U.S. and Britain cover up the problem and avoid liability? The old rhyme said, there’s a problem selling a commodity short when you actually don’t have the commodity.

He who sells what isn’t his must pay up and go to prison. That’s what people always warned short sellers. Be very careful if you sell the right for somebody to demand this commodity from you when the period is up and you say, well, I’m sorry, we just speculated that the price would go down, but we really don’t have the gold or the wheat or the copper to sell you, then that’s fraud and you’re sent to prison.

So what’s going to happen if a whole government does it? Well, remember what President Nixon said, when the president does it, it’s not a crime. That’s something that today will say, well, no, it’s not a crime that we can’t give you the gold that you thought you bought. We’ve given you the money for the gold.

We’ve made you whole. Isn’t that enough? Because we’ve changed the whole nature of the system. So they need a new goldfinger to blame for the empty, empty vaults at Fort Knox.

But how are they going to find this? Well, the goldfinger really couldn’t have done all of what he did so simply in the movie, but maybe somebody can just atom bomb Fort Knox and then you’ll blame whoever is America’s enemy of the week. They can say, oh, Hamas blew up Fort Knox with the atom bomb that Iran gave them. We’re going to attack Iran and it’s really too bad that they’ve done this, but there’s no more gold.

So that’s a national emergency. You’re just going to have electronic dollars now. Maybe there’ll be something science fiction-y like that.

Well, the West wants to demonetize gold so that the problem, poof, goes away by collective agreement. And the problem is going to be to convince the Europeans and others to take it on the chin and say, okay, we’re going to demonetize all of our gold. We may hold it, but we’ll agree in the future that the United States can continue to wage the new Cold War and spend dollars in the economy.

And we’re not going to buy more gold unless we pay $4,000, $5,000, $6,000 an ounce for it. But we’re going to continue to let the US dollar be the basis of our own monetary and financial system. Well, is Europe really going to do that? Certainly China, Russia, most of Asia, and the global South are not going to do that.

That’s what makes this gold price so political. This idea of where did the gold go is the key to how the world’s monetary system and the controls world geopolitics is going to be going for the next few years. Very well said, Michael.

I think you raised all of the important points that you had wanted to raise. Was there anything else? Well, I know that it seems boring to people to go through the mechanics of the COMEX exchange and the bullion dealers. That doesn’t seem—these technicalities and how the system works doesn’t seem very exciting, but it turns out the devil’s in the details.

And once you understand how the system works, you see where the vulnerabilities lie and where the instability lies, or as we like to say, internal contradictions. Well, I think that’s a great note to end on, Michael. We were speaking with the award-winning economist Michael Hudson.

You can find all of his work at his website, michael-hudson.com. Michael, thanks for joining us today on Geopolitical Economy Report and explaining these very important, very interesting developments. It’s always a real pleasure having you. Well, I’m glad you let me get into all the technicalities that we don’t usually work into our political discussions.

Of course. It’s a real pleasure. We’ll see you next time.